Global equities experienced a significant downturn, particularly in Asian markets and US equity-index futures, following warnings from leading artificial intelligence companies about the need to slow down AI development. This concern directly impacted a sector that has been a primary driver of market rallies this year. Chipmakers like SK Hynix Inc. and Samsung Electronics Co. saw declines, and SoftBank Group Corp., a major OpenAI backer, slumped as much as 13% in Tokyo after OpenAI CEO Sam Altman stated the company would not go public this year. The tech-heavy Nasdaq 100 Index futures declined 1.1% and S&P 500 Index contracts fell 0.4%.
Adding to market anxieties, oil prices advanced, with Brent crude topping $108 a barrel, after Saudi Arabia closed its East-West pipeline due to attacks, fueling inflation concerns. The dollar strengthened, and Treasuries maintained losses from the prior week's selloff, pushing the benchmark 10-year yield closer to 5%. Swap traders are now pricing in a nearly 90% chance that the Federal Reserve will raise its key interest rate on Wednesday, following hotter-than-expected US inflation data.
The call for an AI slowdown came from figures like Anthropic CEO Dario Amodei, who urged the industry to moderate the pace of developing advanced AI models due to potential risks. Both Elon Musk of xAI and Sam Altman supported this proposal. This development has prompted investors to re-evaluate the "AI trade," questioning whether these warnings could curb corporate spending and impact earnings expectations across the AI supply chain. Analysts like Tim Waterer of KCM Trade described the situation as "Two unwelcome headwinds collide," noting that the combination of AI slowdown concerns, rising oil prices, and a 10-year Treasury yield near 5% creates a difficult environment for risk assets.
While some investors anticipate any pullback to be short-lived, given strong demand for computing infrastructure, others are more cautious, waiting to see how far the slowdown in AI development might extend. Mohit Kumar at Jefferies suggested that while guardrails might steer AI development, they are unlikely to halt its forward momentum. The market sentiment was also affected by impending central bank meetings, with the Fed and Bank of Japan facing pressure to raise rates amidst mounting inflation risks.
