Markets slide after viral AI paper predicts job losses, recession, says ‘have time to be proactive’ — What to know – Crypto News

Citrini Research’s has called its report titled ‘The 2028 Global Intelligence Crisis’, a “scenario, not a prediction”, that aims to prepare readers “for potential left tail risks as AI makes the economy increasingly weird”.

The report itself claims to be a thought experiment “detailing the progression and fallout of the Global Intelligence Crisis”. Hypothetical as it is, the original post on social media platform X (on Monday) has garnered over 12,000 likes, more than 8,000 reposts and views in the excess of 8.2 million, till time of writing.

Alap Shah, chief investment officer at Lotus Technologies is among the co-authors of the viral research report.

Scenario: ‘The 2028 Global Intelligence Crisis’

The study hypothesis a 2028 world with advanced machine intelligence that will render a number of human jobs obsolete, triggering massive layoffs, collapsing consumer spending and dragging down stock indexes like the S&P 500.

It further notes that loss of jobs creates a “negative feedback loop with no natural brake” where companies cut jobs because they need fewer workers, displaced workers spend less, margins tank and companies more in AI, which leads to more job losses… and so it goes on.

Through the course of the paper the emphasis is on how peaking markets and healthy economy are two different things. “In every way AI was exceeding expectations, and the market was AI. The only problem… the economy was not,” it notes.

What this means is that the markets can celebrate AI companies and their successes without worrying over real world application or impact of the output. But the economy gauges metrics such as consumer spending, inflation and jobs — all set to be negatively impacted by AI.

Service heavy sectors such as food delivery, finance, financial advice, insurance, mortgages, real estate, software, travel services, are seen at highest risk. Further, it noted that sector risks will turn into systemic risks and recession — by virtue of it being a loop, not a cycle.

“Labor displacement, mortgage concerns, private market turmoil. Each reinforces the other,” it added, noting that the “system wasn’t designed for a crisis like this”.

“The economy can find a new equilibrium. Getting there is one of the few tasks left that only humans can do. We need to do it correctly… As investors, we still have time to assess how much of our portfolios are built upon assumptions that won’t survive the decade. As a society, we still have time to be proactive,” the paper concluded.

Markets hit by “non-prediction” panic: What happened?

The paper gained traction online and as the fear spread, markets reacted. The S&P 500 fell 1% while an exchange-traded fund focused on software tumbled 4.8%, bringing its drop from a peak in September to around 35% — International Business Machines Corp. saw its worst drop in 25 years, Bloomberg reported.

According to a Business Insider report, the Dow crashed over 800 points around midday after the report released on Monday, and the Nasdaq fell more than 1%. Biggest losers were software names including AppLovin, Asana, DocuSign, and Zscaler, which saw sharp declines each, it added.

“We are entering a really highly volatile time in the markets,” Shah told Bloomberg, adding that he expects more market swings in the near term, including in software companies (which are likely to see longer term impact).

Why is Asia, Asian stocks the winners?

According to the report, amid widespread artificial intelligence fueled disruption, Asian companies, especially semiconductor maker, are likely to emerge as the ultimate winners by 2028. It noted that the continent homes majority of the global chipmakers, semiconductor foundries and assemblers

Speaking to Bloomberg TV, Shah said that data centres, foundation labs and semiconductors are the key sectors set to benefit. “Clearly semiconductors are huge winners. Things that are upstream to semiconductors are huge winners — so everything required to construct a data center,” he said.

He identified two sectors that will “accrue” gains from AI — materials and tech. The Bloomberg report noted that stocks of Taiwan Semiconductor Manufacturing Co. (TSMC), Samsung Electronics Co. and SK Hynix, MiniMax Group Inc., and Knowledge Atlas Technology JSC have more than doubled this month.

How to deal with AI disruption?

On the disruption caused due to AI, Shah noted that AI is likely to cut white collar jobs by 5% over the next 18 months, with the United States banking and insurance sectors taking the majority hit. and suggested that imposing an AI tax would “cushion” job losses, as per another Bloomberg report.

“Governments should consider taxing incremental or windfall gains from AI to offset worker displacement and protect consumer demand,” he said.

Who is Alap Shah, co-author of viral AI paper?

According to Shah’s LinkedIn profile, he is CEO of AI company Littlebird and managing partner at Lotus Technology Management.

Other credits on his page include co-founder of meal service Thistle, and CEO and chairman of financial data platform Sentieo (acquired by AlphaSense).

Note: The research paper cited is hypothetical. None of the scenarios have happened yet and may likely not happen in the future either.

(With inputs from Bloomberg)