The pessimists would argue that while AI will create economic gains in the longer run, the world is greatly extrapolating the current trend, creating a bubble in AI-related stocks. Google search volume in the US on ‘ChatGPT’ and ‘AI’ peaked in April and is already declining, suggesting that the initial hype is beginning to fade, although the hype has not yet ended in equity markets. The pessimists will also argue that generative AI will cause a flood of fake news, images and video, essentially polluting its own training data in the future, causing a natural stagnation in future systems, but even worse, that it will potentially break down trust in our information systems. This scenario could be a big comeback for traditional media as a trusted source of information.
The AI race between the US and China
Vladimir Putin said in 2017 that whoever becomes the leader in AI will become the ruler of the world. Russian leaders are experienced in hyperbolic language, so this prediction should naturally be discounted, but AI will likely play a crucial role in the great power competition of the future.
Reading articles about technology and AI from those years around 2017, it is clear that the world thought China was either leading the AI race or at least had the speed to overtake the US in a few years. Surprisingly, it turned out, that the US was leading everyone else, as AI systems such as OpenAI’s GPT-4 and Google’s Bard are crushing AI systems from China across many benchmark tests.
As we described in our previous Quarterly Outlook, the future will be dictated by what we call the fragmentation game, which is essentially a strategic geopolitical dynamic fragmenting the world into regions with a higher degree of independence and with national security interests driving policies around four pillars: defence, energy, technology, and commodities. The fragmentation game is mostly a game evolving around how the physical world operates and it is a game in which Europe and the US are aiming to reduce China’s role in their respective supply chains. While it causes headwinds for China, it creates tailwinds for other countries, which is well crystalised in our chart showing Chinese equity market performance vs those countries that are benefitting.