Quick thoughts on investing for transformative AI (TAI)
Some EAs/AI safety folks invest in securities that they expect to go up if TAI happens. I rarely see discussion of the future scenarios where it makes sense to invest for TAI, so I want to do that.
My thoughts aren’t very good, but I’ve been sitting on a draft for three years hoping I develop some better thoughts and that hasn’t happened, so I’m just going to publish what I have. (If I wait another 3 years, we might have AGI already!)
When does investing for TAI work?
Scenarios where investing doesn’t work:
Takeoff happens faster than markets can react, or takeoff happens slowly but is never correctly priced in.
Investment returns can’t be spent fast enough to prevent extinction.
TAI creates post-scarcity utopia where money is irrelevant.
It turns out TAI was already correctly priced in.
Scenarios where investing works:
Slow takeoff, market correctly anticipates TAI after we do but before it actually happens, and there’s a long enough time gap that we can productively spend the earnings on AI safety.
TAI is generally good, but money still has value and there are still a lot of problems in the world that can be fixed with money.
(Money seems much more valuable in scenario #5 than #6.)
What is the probability that we end up in a world where investing for TAI turns out to work? I don’t think it’s all that high (maybe 25%, although I haven’t thought seriously about this).
You also need to be correct about your investing thesis, which is hard. Markets are famously hard to beat.
Possible investment strategies
Hardware makers (e.g. NVIDIA)? Anecdotally this seems to be the most popular thesis. This is the most straightforward idea but I am suspicious that a lot of EA support for investing in AI looks basically indistinguishable from typical hype-chasing retail investor behavior. NVIDIA already has a P/E of 56. There is a 3x levered long NVIDIA ETP. That is not the sort of thing you see when an industry is overlooked. Not to say NVIDIA is definitely a bad investment, it could be even more valuable than the market already thinks, I’m just wary.
AI companies? This doesn’t seem to be a popular strategy, the argument against is that it’s a crowded space with a lot of competition which will drive margins down. (Whereas NVIDIA has a ~monopoly on AI chips.) Plus I am concerned that giving more money to AI companies will accelerate AI development.
Energy companies? It’s looking like AI will consume quite a lot of energy. But it’s not clear that AI will make a noticeable dent on global energy consumption. This is probably the sort of thing you could make reasonable projections for.
Out-of-the-money call options on a broad index (e.g. S&P 500 or NASDAQ)? This strategy avoids making a bet about which particular companies will do well, just that something will do much better than the market anticipates. But I’d also expect that unusually high market returns won’t start showing up until TAI is close (even in a slow-takeoff world), so you have less time to use the extra returns to prevent AI-driven extinction.
Commodities? The idea is that anything complicated will become much easier to produce thanks to AI, but commodities won’t be much easier to get, so their prices will go up a lot. This is an interesting idea that I heard recently, I have no idea if it’s correct.
Momentum funds (e.g. VFMO or QMOM)? The general theory of momentum investing is that the market under-reacts to slow news. The pro of this strategy is that it should work no matter which stocks/industries benefit from AI. The con is that it’s slower—you don’t buy into a stock until it’s already started going up. (I own both VFMO and QMOM (mostly QMOM), a bit because of AI but mainly because I think momentum is a good idea in general.)
I think your reasoning is generally correct. Another argument: If you believe things look sufficiently grim under short timelines, maybe you should invest under the assumption that a recession, or something else, will pop the AI bubble and gives us longer timelines.
Re: Possible investment strategies there is a dialogue on LessWrong from November 2023 which I think still holds up. Quoting from the takeaways:
Invest like 50% of my portfolio into pretty broad index funds with really no particular specialization
Take like 20% of my portfolio and throw it into some more tech/AI focused index fund. Maybe look around for something that covers some of the companies listed here on the brokerage interface that is presented to me (probably do a bit more research here)
Invest like 3-5% of my portfolio into each of Nvidia, TSMC, Microsoft, Google, ASML and Amazon
Take like 2-5% of my portfolio and use it to buy some options (probably some long-term call options on some of the stocks above), making really sure I buy ones that have limited downside, and see whether I can successfully not blow up that part of my portfolio for like 2 years before I do any more here
And then I probably wouldn’t bother much with rebalancing and basically forget about it unless I feel like paying much extra attention.
About energy companies, I think the investment idea is less about general global energy consumption via AI, but rather the companies that are helping to build out and power these large data centres.
Quick thoughts on investing for transformative AI (TAI)
Some EAs/AI safety folks invest in securities that they expect to go up if TAI happens. I rarely see discussion of the future scenarios where it makes sense to invest for TAI, so I want to do that.
My thoughts aren’t very good, but I’ve been sitting on a draft for three years hoping I develop some better thoughts and that hasn’t happened, so I’m just going to publish what I have. (If I wait another 3 years, we might have AGI already!)
When does investing for TAI work?
Scenarios where investing doesn’t work:
Takeoff happens faster than markets can react, or takeoff happens slowly but is never correctly priced in.
Investment returns can’t be spent fast enough to prevent extinction.
TAI creates post-scarcity utopia where money is irrelevant.
It turns out TAI was already correctly priced in.
Scenarios where investing works:
Slow takeoff, market correctly anticipates TAI after we do but before it actually happens, and there’s a long enough time gap that we can productively spend the earnings on AI safety.
TAI is generally good, but money still has value and there are still a lot of problems in the world that can be fixed with money.
(Money seems much more valuable in scenario #5 than #6.)
What is the probability that we end up in a world where investing for TAI turns out to work? I don’t think it’s all that high (maybe 25%, although I haven’t thought seriously about this).
You also need to be correct about your investing thesis, which is hard. Markets are famously hard to beat.
Possible investment strategies
Hardware makers (e.g. NVIDIA)? Anecdotally this seems to be the most popular thesis. This is the most straightforward idea but I am suspicious that a lot of EA support for investing in AI looks basically indistinguishable from typical hype-chasing retail investor behavior. NVIDIA already has a P/E of 56. There is a 3x levered long NVIDIA ETP. That is not the sort of thing you see when an industry is overlooked. Not to say NVIDIA is definitely a bad investment, it could be even more valuable than the market already thinks, I’m just wary.
AI companies? This doesn’t seem to be a popular strategy, the argument against is that it’s a crowded space with a lot of competition which will drive margins down. (Whereas NVIDIA has a ~monopoly on AI chips.) Plus I am concerned that giving more money to AI companies will accelerate AI development.
Energy companies? It’s looking like AI will consume quite a lot of energy. But it’s not clear that AI will make a noticeable dent on global energy consumption. This is probably the sort of thing you could make reasonable projections for.
Out-of-the-money call options on a broad index (e.g. S&P 500 or NASDAQ)? This strategy avoids making a bet about which particular companies will do well, just that something will do much better than the market anticipates. But I’d also expect that unusually high market returns won’t start showing up until TAI is close (even in a slow-takeoff world), so you have less time to use the extra returns to prevent AI-driven extinction.
Commodities? The idea is that anything complicated will become much easier to produce thanks to AI, but commodities won’t be much easier to get, so their prices will go up a lot. This is an interesting idea that I heard recently, I have no idea if it’s correct.
Momentum funds (e.g. VFMO or QMOM)? The general theory of momentum investing is that the market under-reacts to slow news. The pro of this strategy is that it should work no matter which stocks/industries benefit from AI. The con is that it’s slower—you don’t buy into a stock until it’s already started going up. (I own both VFMO and QMOM (mostly QMOM), a bit because of AI but mainly because I think momentum is a good idea in general.)
There is some discussion of strategy 4 on LW at the moment: https://www.lesswrong.com/posts/JotRZdWyAGnhjRAHt/tail-sp-500-call-options
I sold all my NVIDIA stock, since their moat looks weak to me:
https://forum.effectivealtruism.org/posts/rBx9RmJdBJgHkjL4j/will-openai-s-o3-reduce-nvidia-s-moat
I think your reasoning is generally correct. Another argument: If you believe things look sufficiently grim under short timelines, maybe you should invest under the assumption that a recession, or something else, will pop the AI bubble and gives us longer timelines.
Re: Possible investment strategies there is a dialogue on LessWrong from November 2023 which I think still holds up. Quoting from the takeaways:
About energy companies, I think the investment idea is less about general global energy consumption via AI, but rather the companies that are helping to build out and power these large data centres.
Microsoft have been investing in nuclear energy, xAI’s Colossus cluster was positioned right next to a natural gas plant, Sam Altman invested in and is now chair of the board of nuclear startup Oklo. And my understanding is that power substation equipment is a bottleneck with equipment like transformers now having a lead time of years