What an AI slowdown could mean for investors

0:00This episode is brought to you by Hard Lessons, a Morgan Stanley podcast. Iconic investors like Stan Druckenmiller, John Gray and Rick Reader break down calls that worked. I knew that this stock would go up for at least two or three years and go up a lot. One's that didn't. I quite frankly thought the company could have reversed course. They didn't. And what they learned in between. When you buy everything and it goes up, it doesn't train you to be a great investor. It sees hard lessons and make all the difference. Listen to Hard Lessons, wherever you get your podcasts. 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 in from Mark Filipino. And here's the news you need to start your day.

1:00Text stocks fell yesterday as markets reacted to ongoing talk of an AI apocalypse. Over the weekend, AI pioneers Sam Altman and Elon Musk joined Anthropics, Daria Oameday 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 quote gambling with our lives. FT columnist John Foley has been looking at the market implications of a slow down. And he argues there's a financial benefit too. He joins me now. Hi John. Hi there. 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 Anthropic

2:01who said that he feels that neither open AI nor anthropic, which obviously the two leading makers of AI models are acting responsibly. Now that came shortly after the incident in which an open AI experiment kind of 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 Amadeh, 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 Amadeh 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?

3:02That'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 Amadeh is talking about as we kind of his 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 chips made by companies like Nvidia that are essential

4:06for the most sophisticated AI models. So that's obviously bad for all those 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 in 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 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.

5:07And 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 Lex 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.

6:12And 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 electronics 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 down the line.

7:14But 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

8:20above 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 treasury 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. It's a step back toward Mao-era prohibitions. But today, the backdrop is tech competition with the US, 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?

9:21Yes, 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 bans 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 something 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.

10:23How similar is this to some of the restrictions that we suffered decades in China before it opened up? Yeah, I think it's really the principle here. I mean, obviously China is not at the stage where it was in the Mao era where no one could travel and few people could come in. It's still much more open. In fact, there's a lot of vis-a-free travel into China. But the idea really is that the right to travel becomes 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 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 it's answered to that so far has been to really strengthen its laws on national security

11:30and 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. Jolais, the FT's Beijing bureau chief. Thanks, Jolais. Thanks, Sonya. You can read more on all these stories for free when you click the links in our show notes. For daily FT news briefing, check back tomorrow for the latest business news. The new episode of the next five is all about the freedom to invent with AI. Steve Taza at Amazon joins me. I think there's such a huge opportunity for innovation. As does Jim Rowan at Deloitte.

12:30We see that when the sea suite is using AI, they get their teams on board as well. And Seth Fox at S&P Global, our data is our crown jewels. We have to draw a bit of a line around the data, but not around the idea. Listen to the next five wherever you get your podcasts. Enjoy. Capital reason is being redefined in real time from macro disruptions and shifting investor expectations to AI driven demand and the rise of private credit. And headlines can tilt markets overnight. How can companies stay on course? Strategic alternatives, the RBC Capital Markets podcast, explores how corporates and investors are navigating new pathways to raise capital, create value, and drive growth. When conditions change, alternatives matter. Listen to strategic alternatives available wherever you get your podcasts.