Why AI slowdown calls could hit chipmakers
What's the story
The recent calls from tech leaders to slow down the development of artificial intelligence (AI) technology could have a short-term impact on chipmakers and supply-chain stocks. However, market experts believe that this will not have a long-term effect as spending on computing infrastructure remains strong. Semiconductor makers and other AI-related stocks could face an initial selloff on Monday as investors weigh the potential earnings impact of a more cautious approach to advanced model development.
Industry response
AI development restraint proposal backed by tech heavyweights
The call for restraint in AI development was led by Anthropic CEO Dario Amodei, who announced plans to introduce more safeguards such as independent third-party evaluations.
He also urged the wider industry to slow down their most advanced models' development.
OpenAI CEO Sam Altman and others also supported this proposal.
Despite these developments, some investors remain skeptical about their long-term impact on the industry.
Market concerns
Concerns over AI investments weigh on technology stocks
Gary Tan, a portfolio manager at Allspring Global Investments in Singapore, is among those who doubt the long-term effects of these developments.
He said while it may cause some short-term pressure, it's unlikely to derail the longer-term AI trade.
However, concerns over massive investments in AI have weighed on technology stocks as investors question whether earnings can justify soaring infrastructure costs.
This has made high-valuation shares linked to the technology particularly vulnerable, with signs of increased spending or weaker returns.
Potential benefits
Slower AI development pace could benefit industry
Some investors believe a slower pace of AI development could actually benefit the industry by giving companies more time to extract returns from infrastructure already being built.
Billy Leung, an investment strategist at Global X Management in Sydney, said the agreement among the CEOs doesn't change the money being spent on chips, power, and infrastructure.
He added that if commercialization and adoption keep growing while new capability eases off a bit, it helps making money from what's already built.
Valuation concerns
Sentiment toward Asian tech firms challenged
Sentiment toward Asian tech firms was already being challenged as traders firmed bets of a Federal Reserve rate hike this week and an increase in global borrowing costs this month.
Charu Chanana, chief investment strategist at Saxo Markets in Singapore, said tech stock valuations may come under more scrutiny because they assume not only strong demand but also a relentless pace of model development.
Investment impact
Demand for computing power and AI adoption remains strong
Despite the souring mood, Chanana believes it is likely to be short-lived, with a push for safeguards leading to more investment in cybersecurity and AI monitoring tools.
She said memory, networking, cooling, and power equipment companies are likely to be protected by projects already in development.
"Demand for computing power and AI adoption does not disappear because additional safeguards are introduced," she added.