Whilst Schmidt acknowledged that the fears regarding the future of the graduating workforce was rational and tried to draw parallels between the current AI boom and the rise of personal computers and smartphones decades ago, the bubbling undercurrents from the potential impact on the current and future workforce continue to simmer. The jury is still out.
For those who follow football, even before the first ball of the World Cup is kicked off, a meme has been trending online joking that Liverpool has replaced its much-maligned manager Arne Slot with AI — Andoni Iraola. He would have “actual intelligence” — a remark Apple co-founder Steve Wozniak used, at another recent graduation ceremony, which, unlike Schmidt’s a week earlier, led to resounding booming applause and cheers. The populist comment notwithstanding, the reality may be somewhat grimmer.
Reality bytes
Tan Su Shan, CEO of DBS Group Holdings, commented that her board sent her a WhatsApp message on the day she was appointed, stating that even the CEO’s job can be replaced by AI. The need even for the existing workforce to continuously reinvent themselves and stay relevant has led to thousands of DBS employees trained to use “agentic AI”, which is AI capable of independent actions and decision-making workflows. It is beyond automation and can make judgement, say, in credit-writing.
Practically, her philosophy is to “save workers, not jobs” — and if so and if there is room for unskilled staff creating capacity for growth rather than mass layoffs for permanent employees, then the magic that is reflected in both the earnings, dividends and record share price of DBS, which carried the Straits Times index (STI) to another new high last week, could continue.
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However, the diminishing employability of job entrants will remain a global challenge — unless growth far exceeds what was ascribed to past technological booms. It may pay off better to be an investor in companies benefiting from this tech revolution (capital) than work to develop it (labour), even for those in the system able to keep up and move up the value chain of higher-skilled jobs.
This may skew the compounded returns for those who already have wealth, especially if the impending IPOs of SpaceX, OpenAI and Anthropic deliver outsized returns. A slice of the pie Donald Trump wants to grab for the US government is to take stakes similar to the 10% Intel Corp stake last year that has revived the local chipmaker. This is on top of the US$2 billion ($2.6 billion) equity stakes in nine quantum computing firms taken in May — another expression of US industrial policy under Trump.
To be sure, it was OpenAI’s suggestion of a sovereign wealth style fund to ease public anxiety about the impact of AI: By giving Americans an equity stake in AI companies — possibly distribute them in time or pay off the record US deficit (after first building the White House Ballroom). They might be a step behind Singapore where the most profitable of the trio, Anthropic, already has Temasek as an investor!
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But if AI wipes out the next generation of workers or debt-fuelled US consumers, who will be left to consume services, buy goods or have their wealth managed?
The Chinese chip at it
Earlier this year on a trip to Shenzhen visiting Huawei and Tencent, I was astounded by not just the advancements they could demonstrate, but also the rapid model development through fierce competition with upgrades daily coming out of the increasingly self-trained models.
Given that it is China, at least for the existing workforce there is some protective relief. The policy intent is to ensure technological progress does not cause mass unemployment or social instability. AI should be used to liberate labour, not replace it, and companies are legally obligated to retrain and reassign workers, and are not allowed to lay off workers per se just on adoption of software or AI.
This may yet hold off the precarious employment challenges faced in China since the property bubble burst and Covid struck — but does not fully address the rising numbers of students extending their degree courses. Common prosperity policies and dual circulation of investment capital in Hong Kong and China have held up its domestic economy thus far.
The critical need to preserve capital domestically explains the clampdown on illegal cross-border securities trading last month, forcing online brokerages like Moomoo, Tiger Brokers and Longbridge to wind down mainland operations which have allegedly enabled domestic citizens to bypass capital controls resulting in “leakage” of US$1 trillion last year.
They may yet be helped ironically by SpaceX, which has banned investors from mainland China and Hong Kong from participating in its US$75 billion IPO, so as to comply with US government regulations given that high-profile aerospace, satellite and AI businesses feature high up in geopolitical and geoeconomic competition. It is another display of the “one world, two systems” approach getting more entrenched, following the Chinese who banned the US$2 billion sale of AI start-up Manus to Meta earlier in April.
Solidarity or bust
In a surprising paper released by Anthropic Institute in June, a global pause on building the most powerful AI systems was suggested. The industry it described has a “gas pedal” but lacks a “brake pedal”.
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It points out the rapid advancement of AI, especially in the area of “recursive self-improvement”— a point where advanced AI agents and AI systems can autonomously design code and train their own successors with minimal human oversight. Terminator: The Rise of the Machines is here! If an advanced model begins autonomously building the next generation of AI, the human role narrows, making future outcomes completely unpredictable.
It may well be Armageddon in 10 years’ time without any human restraint (which is also fraying given the war in Ukraine and the war that the US is “not having” with Iran.)
Anthropic’s CEO Dario Amodei suggested that AI models capable of outperforming Nobel Prize-winning scientists in biology, math and engineering could arrive within the next two years.
And that a temporary pause on “frontier” AI development is necessary to give global governments, legal structures and AI safety alignment time to catch up to manage these hyper-capable systems.
Anthropic had famously refused unconditional use of AI models by the Pentagon earlier this year, drawing ethical lines against mass domestic surveillance and fully autonomous lethal weapons. Not unexpectedly, the Pentagon then enlisted OpenAI and xAI to provide models for its classified networks.
Any unilateral pause by one company or one country would likely be useless, and the suggestion is for a highly coordinated framework globally from multiple well-resourced labs in Europe and China.
In a world where multilateral institutions and solidarity are diminishing, it is hard to imagine broad agreement even between the Europeans and the Americans. The former first proposed AI rules but were not supported by their erstwhile US allies, both government and tech companies who considered that a threat to American innovation and dominance.
Is Anthropic therefore now ethically altruistic? Or, because of its impending IPO, is this a tactic to slow down rivals?
Market asks questions
As the rekindled AI bubble this year has led to parabolic returns not only for US Big Tech, but also Korean, Japanese and Taiwanese stocks as well as those in the “supply chain” or ecosystem here like AEM Holdings, valuation multiples especially in the West and some in North Asia have started to look dotcom-like.
Companies sucking up capital include new issues the likes of SpaceX, Open AI and Anthropic coming to market later this year, each bandying trillion-dollar valuations. The existing ones are demanding their share of new funds too. Alphabet, which runs Google, successfully raised a whopping US$85 billion last week. Meta Platforms, parent company of Facebook, has spent US$145 billion this year and expects to spend even more next year, and is rumoured to also raise funds soon. The appetite for data centres to fuel and train and run advanced AI models know no bounds. Amazon and Microsoft too may follow suit. If so, this period will mark an unprecedented glut in public fundraising.
Not surprisingly, the Nasdaq has turned a tad. The staircase up is often followed by the elevator down. And the 4% sell-off on June 5 —attributed to a stronger labour market driven by leisure, hospitality and healthcare — may just be a sign that investors, forced to buy mega caps dominating indices, may start tiring of valuations that, in some cases, price in intergalactic hopes.
Back to basics
The volatility expected in equity growth investing should not be a surprise. Pets.com may not have survived the dotcom era like many others, but investors who held on to Alphabet have done very well.
The old adage “this time is different” for investors piling in on stratospheric multiples or imaginative metrics including eyeballs normally has a sobering end. The software and meme stock bubble of fluff that carried many in the 2021 pandemic days has gone out of fashion. Even crypto has had a longer autumn, with Bitcoin halving its high with expectations of a pro-crypto bro in the White House facing some reality checks again.
Should money cycle back out from this quarter’s AI fascination and US markets get into digestion mode for new and secondary issues, this summer may be time in the sun for both the well-supported STI and some small and mid caps here which have pulled back a tad with the AI distraction, making valuations more compelling once again. At least for me, I am happier to take comfort in discounts to NAV, cash flow and profits in companies closer to home, and happier to leave hope and prayers to the gods. Of course, this assumes AI does not wipe us out altogether and not just take our jobs.
Chew Sutat retired from Singapore Exchange after 14 years as a member of its executive management team. During his watch, the exchange transformed from an Asian gateway into a global multi-asset exchange, and he was awarded FOW’s lifetime achievement award.
