In general, it’s very difficult for stock market investors to make bets related to large shifts in technology because the benefits of such growth are typically concentrated in firms that do not yet exist. Someone who saw the economic importance of operating systems in the 1960s couldn’t have capitalized on that foresight because Microsoft and Apple weren’t founded until the 1970s.
It’s also unclear whether the benefits of AGI would go to companies which create AGI itself, companies which control critical data needed to train AGI, or companies who are well positioned to utilize AGI. For example, you can imagine a world where Google and Microsoft both develop AGIs but make little profit from them because stiff competition keeps the price of using an AGI extremely low.
A good strategy may be to invest in all marketable securities (with an ETF like VT and an equivalent bond ETF). You’d be betting that any company might experience rapid growth due to AGI.
Another strategy might be to tilt your portfolio based on regions which seem to be hubs for AI innovation. For example, since most AI innovation seems to be concentrated in the US right now, you could choose a US total market ETF such as VTI. I believe such an investment decision would be a mistake, however. Although US firms are developing AI rapidly, international firms seem to be equally well positioned to utilize AGI.
In the short term, some companies may be well positioned to capitalize on the AI boom. Microsoft comes to mind, as do manufacturers of data center equipment (chips, cooling equipment, etc.). However, these short-term possibilities are already priced into those securities. In the long run, however, AGI could easily destroy the strong market positions of these companies—why pay for Microsoft Word when you can simply have an AGI develop a new word processor just for you? Why by a chip fab system from ASML when an AGI can design you a new, better semiconductor platform?
Edit: clarifying what I think is priced into the market right now.
these possibilities are already priced into those securities
This post argues that markets do not seem to be expecting an AGI explosion (which, of course, could be interpreted as evidence that such an explosion is unlikely to occur and the market is correct to not price the possibility in).
In that paragraph I meant to refer only to the “AI boom”—essentially all the recent LLM stuff. In general I don’t think it matters to the investor whether the possibility of AGI is accounted for in the markets because the benefits of such growth would likely be concentrated in firms that do not yet exist.
The post you linked to also discusses the possibility of trying to use incorrectly priced debt instruments to take capitalize on the potential development of AGI. However, such a strategy is not realizable in practice because you’d need to find a counter-party/lender. At best, you’d end up with a callable debt—not very useful over an extended time horizon.
In general, it’s very difficult for stock market investors to make bets related to large shifts in technology because the benefits of such growth are typically concentrated in firms that do not yet exist. Someone who saw the economic importance of operating systems in the 1960s couldn’t have capitalized on that foresight because Microsoft and Apple weren’t founded until the 1970s.
It’s also unclear whether the benefits of AGI would go to companies which create AGI itself, companies which control critical data needed to train AGI, or companies who are well positioned to utilize AGI. For example, you can imagine a world where Google and Microsoft both develop AGIs but make little profit from them because stiff competition keeps the price of using an AGI extremely low.
A good strategy may be to invest in all marketable securities (with an ETF like VT and an equivalent bond ETF). You’d be betting that any company might experience rapid growth due to AGI.
Another strategy might be to tilt your portfolio based on regions which seem to be hubs for AI innovation. For example, since most AI innovation seems to be concentrated in the US right now, you could choose a US total market ETF such as VTI. I believe such an investment decision would be a mistake, however. Although US firms are developing AI rapidly, international firms seem to be equally well positioned to utilize AGI.
In the short term, some companies may be well positioned to capitalize on the AI boom. Microsoft comes to mind, as do manufacturers of data center equipment (chips, cooling equipment, etc.). However, these short-term possibilities are already priced into those securities. In the long run, however, AGI could easily destroy the strong market positions of these companies—why pay for Microsoft Word when you can simply have an AGI develop a new word processor just for you? Why by a chip fab system from ASML when an AGI can design you a new, better semiconductor platform?
Edit: clarifying what I think is priced into the market right now.
This post argues that markets do not seem to be expecting an AGI explosion (which, of course, could be interpreted as evidence that such an explosion is unlikely to occur and the market is correct to not price the possibility in).
In that paragraph I meant to refer only to the “AI boom”—essentially all the recent LLM stuff. In general I don’t think it matters to the investor whether the possibility of AGI is accounted for in the markets because the benefits of such growth would likely be concentrated in firms that do not yet exist.
The post you linked to also discusses the possibility of trying to use incorrectly priced debt instruments to take capitalize on the potential development of AGI. However, such a strategy is not realizable in practice because you’d need to find a counter-party/lender. At best, you’d end up with a callable debt—not very useful over an extended time horizon.