What an AI slowdown could mean for investors

Good morning from the Financial Times. Today is Tuesday, September 15th, and this is your FT news briefing. Investors are not loving AI's existential crisis, and US supply chains are struggling. Plus, China is restricting which of its citizens can leave the country. I'm Sonya Hudson, and for Mark Filipino, and here's the news you need to start your day. Tech stocks fell yesterday as markets reacted to ongoing talk of an AI apocalypse. Over the weekend, AI pioneers Sam Altman and Elon Musk joined inthropic Stario Amade in calls to slow down AI development. They're worried that humans could lose control of the technology. This comes after an anthropic researcher quit publicly last week over concerns that the industry is "gambling with our lives". FT columnist John Foley has been looking at the market implications of a slowdown, and he argues there's a financial benefit too. He joins me now. Hi, John. So let's start with why everyone is suddenly really worried about AI and also AI companies. So the two things that have really caught people's attention. One is the online resignation note from this researcher Jacob Cox and from an anthropic who said that he feels that neither open AI nor anthropic, which obviously the two leading makers of AI models are acting responsibly. Paying shortly after the incident in which an open AI experiment went a bit wrong and one of its bots ended up hacking a company called Hugging Face, which has created all kinds of soul searching about whether AI has reached the point where it's now doing things that we didn't expect it to potentially causing a lot of damage. And Dario Amade, who's the head of anthropic, he published a long essay this weekend in which he said it's time to slow down the pace of AI development. So now everyone is asking the question of exactly what that means, what it means to slow down, how they would do it, who would do it, and whether it would really help. So Amade is worried that runaway AI could cost billions of dollars and it could also endanger global security like if AI figured out how to build bio weapons. Is the US government thinking about doing anything about this? That's where a lot of these companies are based. So the US government has not shown much appetite so far for passing federal regulation that limits the behavior of AI companies. And President Trump has responded to the recent concerns about rogue AI by saying that he thinks that this is a conspiracy that basically hands an advantage to China. Now what Amade is talking about this weekend is essay is the sort of voluntary slowdown enhanced with some regulatory measures and some kind of diplomatic measures. But it basically amounts to the company's volunteering to be less effective at innovating, at least for the foreseeable future. Now in response to all this text docs fell yesterday, chip makers were hit especially hard. Should AI companies and their shareholders be worried? So the fall in share prices reflects the idea that if these so-called frontier AI companies are not investing as heavily in the new models, that there will be much less demand for data centers and for some of the chip made by companies like Nvidia that are essential for the most sophisticated AI models. So that's obviously bad for all the people who've been fighting to build data centers on every available patch of earth all over the planet. All that said, for investors and companies like Anthropic and Open AI, I have to believe that it is good if those companies are less likely to cause some kind of AI Doomsday scenario. Obviously if we have an AI Doomsday scenario and everyone's portfolio goes to zero, that's not good for anyone. But also it means that those AI companies themselves are going to spend a bit less on developing these models. They can focus on monetizing the models that they have. And more of that would be great for an investor in Anthropic and also an Open AI. So John, Anthropic and Open AI are both looking at IPOs. What could this turn of events potentially do to those flotations? So I think Open AI has already seems to have delayed its IPO. I think with any IPO, you want to reduce the number of variables in the company's valuation. And if these companies are actively debating whether they need to slow down their rate of progress. And we're actively debating with these companies, bring a risk of making humans extinct. I think ideally you want to wait to price the shares until you know a bit more about that. At the same time, they both need lots of money. They're both doing very heavy investment. So I think the more they wait, the better for their investors, but they really can't afford to wait forever. John Fully is the head of the FT's Lacks column. Thanks, John. Thank you. US manufacturers are stuck in a supply chain squeeze. It's pretty bad. What manufacturers in the US are experiencing at the moment is just the price of everything going up considerably. That's the FT's US economics correspondent, Miles McCormick. The cost of what's known as intermediate goods, which is the stuff that manufacturers buy in order to make other stuff is of about 12% since last year. And for the electronics industry in particular, it's actually becoming increasingly hard to secure the parts that they need to make things. That's because inflation is ravaging American industries. Miles says there's three factors at play here. The first is Donald Trump's tariff regime, which has really driven up the price of imported goods. The second is the war in Iran. Energy prices have just become so much higher. And the third is the AI boom. The fact that companies are scrambling to secure resources to build out data centers just means that in the electronic sector, there's not as much parts available to go around. And Miles says American manufacturers will only feel some relief once one of those three things cools off a bit. In addition to those factors, if the Fed decides to hike interest rates as is widely expected this week, that could help to tame inflation dandelion. But all of these are things that if they do happen, it'll take a significant time for the cost effects to materialize. So in the near term, at least, we're in for a bit of an inflationary picture. Miles McCormick is the FT's US economics correspondent. Foreign investors are now buying more US stocks than government bonds. It's a rare move that shows the risk-free status of treasuries is under threat. The S&P 500 is on track for a fourth-street year of double-digit gains because of AI investment. But things aren't going so well for treasuries. The 10-year yield hit 5% yesterday. It's the world's most important financial gauge, and this moves borrowing costs into unsettling territory. Yields rise as bond prices fall. The 10-year yield briefly rose to 5% in 2023. But the last time it consistently hovered above that level was in the lead-up to the global financial crisis. Government bonds around the world have sold off this year because of inflation, growing public debt, and blockbuster corporate bond issuance. The rise in treasuries yields is likely to push up mortgage rates, which have jumped to 6.8% in recent weeks. It will also put pressure on corporate America by making capital more expensive for businesses. New exit laws are going into effect today in China on overseas travel for its citizens. To step back toward Mao-era prohibitions. But today, the backdrop is tech competition with the U.S. And the restrictions are part of an effort to secure advanced technology and retain highly skilled workers. Jolay is the FT's Beijing Bureau chief, and he's here to talk about it. Hi, Joe. Hi, Sonia. So what exactly are these new restrictions? Yeah, so these new restrictions are quite sweeping compared to what we've had in the past. And one of the key ones is that now if you are accused of violating an export ban or endangering national security in very broad language like that, you can be subject to an exit ban in China in that they will stop you from leaving the country. And these bands can range from anything from three months to indefinitely. So for example, you might have a tech executive who they feel has extremely sensitive intellectual property and they don't want that person going to Silicon Valley or somebody like that and maybe doing deals and they can stop them. And we saw this with a deal when Manus and AI company in China was sold to Meta. And after that deal, which the Chinese authorities didn't like, they slept in exit ban on the management of Manus. Now, I mentioned earlier this is sort of a step back towards Mao-era prohibitions. How similar is this to some of the restrictions that we saw for decades in China before it opened up? Yeah. it's really the principle here. I mean, obviously China's not at the stage where it was, you know, in the Mauiro where no one could travel and few people could come in. It's still much more open. In fact, there's a lot of visa free travel into China. But the idea really is that the right to travel becomes, you know, a privilege that's decided by the state for a large number of people. One group that we haven't mentioned yet is government officials. All kinds of government officials, you know, have to surrender their passports and when they want to travel, they have to ask for permission. That's already happening in China. Joe, just taking a step back, what do you think these new rules tell us about how the government is dealing with its competition with the West? Yeah, I think what we're seeing here is as China moves up the ladder of technological advancement, it is becoming more and more sensitive about passing that IP to the West and its answer to that so far has been to really strengthen its laws on national security and we've seen a whole spate actually of what they call foreign related law, which is all about trying to tighten up on investment, tighten up on supply chains. We're seeing this sort of legal fortress being created in China as it as it competes with the West. Joe Lay is the FT's Beijing bureau chief. Thanks, Joe. Thanks, Sonia. You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT news briefing. Check back tomorrow for the latest business news.