What gives you confidence that much value will accrue to the equity of the companies in those indices?
It seems like, in the past, technological revolutions mostly increase churn and are anti-incumbent in some way e.g. (this may be false in particular, but just to illustrate my argument with a concrete-sounding example) ORCL has over 150k employees whose jobs might get nuked if AGI can painlessly and securely transfer its clients to OSS instead of expensive enterprise solutions.
If I try to think about what’s the most incumbent-friendly environment, almost by definition it ought to be one where not much is changing, but you’re trying to capture value in the opposite scenario.
VTI is basically the entire US market, and companies are added to the index as they go public. You will gain unless the value goes to private companies, but then you couldn’t invest in them anyway. There are other indices for international equities.
Right—successful private companies (like nearly all the hot AI labs) are staying private for far longer (indefinitely?) so this bet will not capture any of the value they create for themselves.
It might also be that AGI is broadly deflationary, in that it will mostly melt moats and, with them, corporate margins (in most cases, except maybe the ones of the first company to roll out AGI).
It just seems far from certain to me that this bet will benefit from the outcome it’s trying to hedge / capture, and given the possible implications here, I’d just urge whoever is considering putting this kind of bet on to get comfortable with that linkage (between real-world outcome and financial outcome) and not just take it for granted.
Maybe the key is not to assume the entire economy will win, but make some attempt to distinguish winners from losers and then find ETFs and other instruments that approximate these sectors.
So, some wild guesses...
AI labs and their big-tech partners: winners
Cloud hosting: winners
Commercial real estate specializing in server farms: winners
Whoever comes up with tractable ways to power all these server farms: winners
AI-enabling hardware companies: winners until the Chinese blockade Taiwan and impose an embargo on raw materials… after that… maybe losers except the ones that have already started diversifying their supply-chains?
Companies which inherently depend on aggregating and reselling labor: tricky, because if they do nothing, they’re toast, but some of them can turn themselves into resellers of AI… e.g. a temp agency rolling out AI services as a cheaper product line
Professional services: same as above but less exposed
Businesses that are needed only in proportion to other businesses having human employees: travel, office real estate, office furniture and supplies: losers
As the effects ripple out and more and more workers are displaced...
Low to mid-end luxury goods and eventually anything that depends on mass discretionary spending: losers
Though what I really would like to do is create some sort of rough model of an individual non-AI company with the following parameters:
Recurring costs attributable to employees
Other recurring costs
Revenue
Fraction of employees whose jobs can be automated at the current state of the art
Variables representing of how far along this company is in planning or implementing AI-driven consolidation and how quickly it is capable of cutting over to AI
Fixed costs of cut-over to AI
Variable costs of cut-over to AI (depending on aggregate workload being automated)
Whatever other variables people who unlike me actually know something about fundamental analysis would put in such a model.
...and then be able to make a principled guess about where on the AI-winners vs AI-losers spectrum a given company is. I even started sketching out a model like this until I realized that someone with relevant expertise must have already written a general-purpose model of this sort and I should find it and adapt it to the AI-automation scenario instead of making up my own.
What gives you confidence that much value will accrue to the equity of the companies in those indices?
It seems like, in the past, technological revolutions mostly increase churn and are anti-incumbent in some way e.g. (this may be false in particular, but just to illustrate my argument with a concrete-sounding example) ORCL has over 150k employees whose jobs might get nuked if AGI can painlessly and securely transfer its clients to OSS instead of expensive enterprise solutions.
If I try to think about what’s the most incumbent-friendly environment, almost by definition it ought to be one where not much is changing, but you’re trying to capture value in the opposite scenario.
VTI is basically the entire US market, and companies are added to the index as they go public. You will gain unless the value goes to private companies, but then you couldn’t invest in them anyway. There are other indices for international equities.
Right—successful private companies (like nearly all the hot AI labs) are staying private for far longer (indefinitely?) so this bet will not capture any of the value they create for themselves.
It might also be that AGI is broadly deflationary, in that it will mostly melt moats and, with them, corporate margins (in most cases, except maybe the ones of the first company to roll out AGI).
Daniel Gross’ [AGI Trades](https://dcgross.com/agitrades) (in particular the first question under “Markets”) comes to mind.
It just seems far from certain to me that this bet will benefit from the outcome it’s trying to hedge / capture, and given the possible implications here, I’d just urge whoever is considering putting this kind of bet on to get comfortable with that linkage (between real-world outcome and financial outcome) and not just take it for granted.
Maybe the key is not to assume the entire economy will win, but make some attempt to distinguish winners from losers and then find ETFs and other instruments that approximate these sectors.
So, some wild guesses...
AI labs and their big-tech partners: winners
Cloud hosting: winners
Commercial real estate specializing in server farms: winners
Whoever comes up with tractable ways to power all these server farms: winners
AI-enabling hardware companies: winners until the Chinese blockade Taiwan and impose an embargo on raw materials… after that… maybe losers except the ones that have already started diversifying their supply-chains?
Companies which inherently depend on aggregating and reselling labor: tricky, because if they do nothing, they’re toast, but some of them can turn themselves into resellers of AI… e.g. a temp agency rolling out AI services as a cheaper product line
Professional services: same as above but less exposed
Businesses that are needed only in proportion to other businesses having human employees: travel, office real estate, office furniture and supplies: losers
As the effects ripple out and more and more workers are displaced...
Low to mid-end luxury goods and eventually anything that depends on mass discretionary spending: losers
Though what I really would like to do is create some sort of rough model of an individual non-AI company with the following parameters:
Recurring costs attributable to employees
Other recurring costs
Revenue
Fraction of employees whose jobs can be automated at the current state of the art
Variables representing of how far along this company is in planning or implementing AI-driven consolidation and how quickly it is capable of cutting over to AI
Fixed costs of cut-over to AI
Variable costs of cut-over to AI (depending on aggregate workload being automated)
Whatever other variables people who unlike me actually know something about fundamental analysis would put in such a model.
...and then be able to make a principled guess about where on the AI-winners vs AI-losers spectrum a given company is. I even started sketching out a model like this until I realized that someone with relevant expertise must have already written a general-purpose model of this sort and I should find it and adapt it to the AI-automation scenario instead of making up my own.
The private hot AI labs are often partially owned by publicly traded companies. So, you still capture some of the value.