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London Quick Take - 14 Sep - Oil up, chips down as Anthropic CEO Dario Amodei leads calls to slow AI development
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Oil up, chips down...crude supply concerns + AI concerns + Fed expected to hike the rate this week after core inflation cleared the Waller line. US 10yr yields have not yet breached 5% but you feel it's only a matter of time. The nexus of worry has been oil but now AI frontier development slowdown risks threaten investment case and will have analysts scrabbling around to assess likely impact on earnings and valuations if the likes of Anthropic, OpenAI and SpaceX + Google? + Meta? coordinate a material slowing in development and erect guardrails.
Will AI kill humanity? I couldn't tell you but there seems to be sufficient alarm among those working on frontier models to worry investors. AI stocks fell Monday as leaders of the world's biggest AI platforms are calling for a slowdown in the development of their most advanced models on mounting concerns that it's all getting out of hand. Anthropic CEO Dario Amodei published an essay over the weekend calling for a coordinated slowdown and safeguards. Elon Musk and Sam Altman agreed. This seems to have been prompted warnings from researchers, notably the resignation of Anthropic researcher Jacob Coxon. Meanwhile, there are rumours Google might have made a breakthrough with recursive self-improvement, a process where AI systems enhance their own code and capabilities with little human help. Whilst President Donald Trump is dismissive of the dangers posed, you get a sense that we may be at a turning point for the frontier development of AI. The problem is China. “Look, we’re leading China in AI... and, frankly I want to keep it that way because whoever wins AI, wins," said Trump. I don't think this requires government as the companies themselves can take the lead. In the UK, the Joint Committee on Human Rights (JCHR), a cross-party group of MPs and peers, called for a new bill on AI to "address the scale and seriousness" of such threats.
Questions...is this all about safety or about spend? If you're stressing about how much cash is being burnt ahead of your planned IPOs then maybe the best thing to do is manage expectations...I don't know. I think the concerns are genuine, but the warnings come as Anthropic said it will be profitable for a second straight quarter ahead of its planned IPO- which at $2tn could be the largest of all time. OpenAI says it's not the right time to go public. Investors now need to contend not just with calls to throttle the pace of development. It complicates things when the assumptions were based on breakneck, unfettered growth rates that would only slow due to excess compute or energy or demand. A more existential analysis is required.
Concerns about safety leading to a slowdown in development and therefore spend mean the investment case is shifting and the narrative is adapting to a more nuanced AI story. Shares in AI-related stocks fell on Monday – SoftBank was down about –10% after OpenAI said it won't go public this year due to the concerns. Altman said an IPO for the ChatGPT maker would be “ill-advised". ASML, Infineon, STMicroelectronics and other AI-linked stocks fell 4-5% early doors in Europe while Nasdaq futures were down a fair bit. South Korea's SK Hynix and Samsung Electronics closed down more than 6% and 4% respectively, while the likes of CoreWeave and Nebius are down heavy in pre-mkt trade. Tech investment trust Polar Capital led the FTSE 100 lower, while a tumble in copper prices drove the miners lower. Despite this the FTSE 100 traded higher with Shell and BP each +1% while the rest of Europe was lower. Wall Street rallied Friday to end a run of four straight losses but the three major indices were down for the week. Dell and Hewlett Packard Enterprise jumped 12% as Oracle’s cloud results strengthened confidence in AI infrastructure spending, while Apple gained 1.8% after its product launch. SpaceX rose 2.0%, with its Nasdaq 100 weighting set to increase to about 2.82% from 1.28%. The vibe around anything AI is decidedly shaky though.
If AI is slowing then software wins as the threat to their models and revenues eases – RELX, Sage and Experian rallied 3-4%. Keep an eye on the AI fear trade losers board – the likes of Salesforce, ServiceNow, Adobe. Also cyber security – if you worry about AI bots rampaging free then you need cyber security.
Oil prices jumped after Gulf states postponed planned talks with Iran over management of the Strait of Hormuz. “In the interests of consensus the regional meeting set for tomorrow in Salalah has been postponed,” Oman’s Foreign Minister Badr Albusaidi posted on Sunday. At came after fresh attacks on Saudi Arabia forced it to close its key east-west pipeline, an artery capable of carrying about 7mn bpd of crude and which acts as a vital release valve for production that's been bottled up by the closure of the Strait. There is no timeline for when it might reopen. The pipeline had been carrying around 5mn bpd of crude bypassing the Strait of Hormuz, which leaves about 4% of global supply at risk and may force Saudi Arabia to make further output cuts as storage facilities fill.
Gold traded softer after being challenged on Friday by the rise in front-end yields on the firmer-than-expected core US inflation print and again today by the latest spike in crude prices with the expected impact on inflation and bond yields. Core month-on-month was just a shade the wrong side of the 0.1ppt difference that I'd talked about in terms of what governor Chris Waller said, coming in at +0.3% (+0.29% rounded vs range of +0.22% to +0.26%). Core annualised at +3.5%, while the three-month annualised rate rose to +2% from +1.6% the month before, and the six-month annualised rate rose to +2.6% from 2.4%. The annual rate of inflation for core CPI was in line with expectations at +2.4%. Headline inflation rose +0.4% on the month and +3.4% over the year as expected. Not the hottest report all told but likely enough to swing it for the Fed. It just needs to step up. Market implied odds for a rate hike rose to about 90% from under 70% before the print, implying it's a done deal, however the Fed, under chair Kevin Warsh, has not indicated expressly what it will take for it to hike, which leaves room for uncertainty. Not raising rates now, given the bond market rout of the last two weeks, would raise a lot of questions. I had a look at this here.
The Bank of England is also in action this week and expected to hold rates steady but we will look at the CPI inflation and labour market ahead of the BoE on Thursday to gauge whether the Bank has room to hike. The rise in oil prices means the UK has entered what the Bank of England set out in July as its 'adverse scenario', a situation that could see headline inflation peak at 4%, raising the likelihood of a broadening in inflation beyond energy and potentially substantiating 4 rate hikes. Market pricing in in this ballpark but I think it's not going to happen. There are lots of questions for the Bank of England.
Will AI kill humanity? I couldn't tell you but there seems to be sufficient alarm among those working on frontier models to worry investors. AI stocks fell Monday as leaders of the world's biggest AI platforms are calling for a slowdown in the development of their most advanced models on mounting concerns that it's all getting out of hand. Anthropic CEO Dario Amodei published an essay over the weekend calling for a coordinated slowdown and safeguards. Elon Musk and Sam Altman agreed. This seems to have been prompted warnings from researchers, notably the resignation of Anthropic researcher Jacob Coxon. Meanwhile, there are rumours Google might have made a breakthrough with recursive self-improvement, a process where AI systems enhance their own code and capabilities with little human help. Whilst President Donald Trump is dismissive of the dangers posed, you get a sense that we may be at a turning point for the frontier development of AI. The problem is China. “Look, we’re leading China in AI... and, frankly I want to keep it that way because whoever wins AI, wins," said Trump. I don't think this requires government as the companies themselves can take the lead. In the UK, the Joint Committee on Human Rights (JCHR), a cross-party group of MPs and peers, called for a new bill on AI to "address the scale and seriousness" of such threats.
Questions...is this all about safety or about spend? If you're stressing about how much cash is being burnt ahead of your planned IPOs then maybe the best thing to do is manage expectations...I don't know. I think the concerns are genuine, but the warnings come as Anthropic said it will be profitable for a second straight quarter ahead of its planned IPO- which at $2tn could be the largest of all time. OpenAI says it's not the right time to go public. Investors now need to contend not just with calls to throttle the pace of development. It complicates things when the assumptions were based on breakneck, unfettered growth rates that would only slow due to excess compute or energy or demand. A more existential analysis is required.
Concerns about safety leading to a slowdown in development and therefore spend mean the investment case is shifting and the narrative is adapting to a more nuanced AI story. Shares in AI-related stocks fell on Monday – SoftBank was down about –10% after OpenAI said it won't go public this year due to the concerns. Altman said an IPO for the ChatGPT maker would be “ill-advised". ASML, Infineon, STMicroelectronics and other AI-linked stocks fell 4-5% early doors in Europe while Nasdaq futures were down a fair bit. South Korea's SK Hynix and Samsung Electronics closed down more than 6% and 4% respectively, while the likes of CoreWeave and Nebius are down heavy in pre-mkt trade. Tech investment trust Polar Capital led the FTSE 100 lower, while a tumble in copper prices drove the miners lower. Despite this the FTSE 100 traded higher with Shell and BP each +1% while the rest of Europe was lower. Wall Street rallied Friday to end a run of four straight losses but the three major indices were down for the week. Dell and Hewlett Packard Enterprise jumped 12% as Oracle’s cloud results strengthened confidence in AI infrastructure spending, while Apple gained 1.8% after its product launch. SpaceX rose 2.0%, with its Nasdaq 100 weighting set to increase to about 2.82% from 1.28%. The vibe around anything AI is decidedly shaky though.
If AI is slowing then software wins as the threat to their models and revenues eases – RELX, Sage and Experian rallied 3-4%. Keep an eye on the AI fear trade losers board – the likes of Salesforce, ServiceNow, Adobe. Also cyber security – if you worry about AI bots rampaging free then you need cyber security.
Oil prices jumped after Gulf states postponed planned talks with Iran over management of the Strait of Hormuz. “In the interests of consensus the regional meeting set for tomorrow in Salalah has been postponed,” Oman’s Foreign Minister Badr Albusaidi posted on Sunday. At came after fresh attacks on Saudi Arabia forced it to close its key east-west pipeline, an artery capable of carrying about 7mn bpd of crude and which acts as a vital release valve for production that's been bottled up by the closure of the Strait. There is no timeline for when it might reopen. The pipeline had been carrying around 5mn bpd of crude bypassing the Strait of Hormuz, which leaves about 4% of global supply at risk and may force Saudi Arabia to make further output cuts as storage facilities fill.
Gold traded softer after being challenged on Friday by the rise in front-end yields on the firmer-than-expected core US inflation print and again today by the latest spike in crude prices with the expected impact on inflation and bond yields. Core month-on-month was just a shade the wrong side of the 0.1ppt difference that I'd talked about in terms of what governor Chris Waller said, coming in at +0.3% (+0.29% rounded vs range of +0.22% to +0.26%). Core annualised at +3.5%, while the three-month annualised rate rose to +2% from +1.6% the month before, and the six-month annualised rate rose to +2.6% from 2.4%. The annual rate of inflation for core CPI was in line with expectations at +2.4%. Headline inflation rose +0.4% on the month and +3.4% over the year as expected. Not the hottest report all told but likely enough to swing it for the Fed. It just needs to step up. Market implied odds for a rate hike rose to about 90% from under 70% before the print, implying it's a done deal, however the Fed, under chair Kevin Warsh, has not indicated expressly what it will take for it to hike, which leaves room for uncertainty. Not raising rates now, given the bond market rout of the last two weeks, would raise a lot of questions. I had a look at this here.
The Bank of England is also in action this week and expected to hold rates steady but we will look at the CPI inflation and labour market ahead of the BoE on Thursday to gauge whether the Bank has room to hike. The rise in oil prices means the UK has entered what the Bank of England set out in July as its 'adverse scenario', a situation that could see headline inflation peak at 4%, raising the likelihood of a broadening in inflation beyond energy and potentially substantiating 4 rate hikes. Market pricing in in this ballpark but I think it's not going to happen. There are lots of questions for the Bank of England.
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