I weakly agree with practically all the arguments in this post, but I think the conclusion is overstated. I suspect looking at stock prices is still quite valuable in light of these points—especially semiconductor stocks, as I suggested in the tweet that you linked in this post.
Fourth, and quite importantly, it is not obvious whether expectations of transformative AI would raise or lower stock prices.
It really only makes sense to talk about prices in a relative, rather than absolute sense. Normally people don’t care about this distinction because they’re talking about nominal prices, and the price of money changes slowly relative to a broad basket of goods and services. But in the context of this post, and especially my linked tweet, I think it’s quite important to make the distinction.
When you say it’s “not obvious whether expectations of transformative AI would raise or lower stock prices”, did you mean in nominal terms (such as after an inflation adjustment)? If so, then I’d agree with the claim as written, but only to the extent that we’re talking about the price of equities in general. In my tweet, I was talking about semiconductor stocks rather than the entire equities market. I think it’s highly plausible that semiconductor companies will be more profitable ex ante than the average investment if investors begin expecting imminent transformative growth. Therefore, it makes sense to talk about the growth of semiconductor stock prices relative to broader equities.
You mention that,
even if we take a basket of tech companies and average over them, then this only includes public companies. If the market expects transformative AI in 12 months, but only because it will be developed by OpenAI – a company which is not traded publicly – then this will not show up in any equity index.
This is a very reasonable point, and I agree it’s something we should keep in mind when talking about how to select the right AI investment index. However, my (admittedly shallow) understanding is that semiconductor stocks are broadly public, considered hard to unseat by private competitors, and have largely benefitted whenever demand for computer hardware is expected to rise in the near-term future.
The real interest rate is a nice alternative measure to look at, but I’m not convinced that it’s more reliable than something straightforward like semiconductor stocks. In addition to some nitpicks I have about the reliability of the argument in the main post (which I’ve talked to Trevor Chow about, at the very least), I’m just not convinced that the real interest rate is a particularly strong benchmark.
(And to be clear, both measures can be unreliable or both reliable. I’m just pushing back against the framing that one is reliable and the other isn’t.)
In the main post, you allude to a “mouth-watering cumulative return of 162%” that one can get over the long-term if they bet on real interest rates rising. However, since my original tweet was posted less than one year ago, NVIDIA has already gone up approximately 161%. If aligned transformative AI is coming soon, I predict we’ll again see a similar rise in semiconductor stocks, albeit with big uncertainty about exactly how much, and to what extent public semiconductor companies can capture that value.
I weakly agree with practically all the arguments in this post, but I think the conclusion is overstated. I suspect looking at stock prices is still quite valuable in light of these points—especially semiconductor stocks, as I suggested in the tweet that you linked in this post.
It really only makes sense to talk about prices in a relative, rather than absolute sense. Normally people don’t care about this distinction because they’re talking about nominal prices, and the price of money changes slowly relative to a broad basket of goods and services. But in the context of this post, and especially my linked tweet, I think it’s quite important to make the distinction.
When you say it’s “not obvious whether expectations of transformative AI would raise or lower stock prices”, did you mean in nominal terms (such as after an inflation adjustment)? If so, then I’d agree with the claim as written, but only to the extent that we’re talking about the price of equities in general. In my tweet, I was talking about semiconductor stocks rather than the entire equities market. I think it’s highly plausible that semiconductor companies will be more profitable ex ante than the average investment if investors begin expecting imminent transformative growth. Therefore, it makes sense to talk about the growth of semiconductor stock prices relative to broader equities.
You mention that,
This is a very reasonable point, and I agree it’s something we should keep in mind when talking about how to select the right AI investment index. However, my (admittedly shallow) understanding is that semiconductor stocks are broadly public, considered hard to unseat by private competitors, and have largely benefitted whenever demand for computer hardware is expected to rise in the near-term future.
The real interest rate is a nice alternative measure to look at, but I’m not convinced that it’s more reliable than something straightforward like semiconductor stocks. In addition to some nitpicks I have about the reliability of the argument in the main post (which I’ve talked to Trevor Chow about, at the very least), I’m just not convinced that the real interest rate is a particularly strong benchmark.
(And to be clear, both measures can be unreliable or both reliable. I’m just pushing back against the framing that one is reliable and the other isn’t.)
In the main post, you allude to a “mouth-watering cumulative return of 162%” that one can get over the long-term if they bet on real interest rates rising. However, since my original tweet was posted less than one year ago, NVIDIA has already gone up approximately 161%. If aligned transformative AI is coming soon, I predict we’ll again see a similar rise in semiconductor stocks, albeit with big uncertainty about exactly how much, and to what extent public semiconductor companies can capture that value.