Investors made a fortune on tech stocks but are AI apocalypse fears the red flag to get out?

Halloween is a month away. But investors are already running scared following this week’s pronouncements from industry insiders on the danger that AI poses to mankind. 

Such is the apparent size of the threat that similarities have even been drawn with Skynet, the self-aware AI system that serves as the antagonist in the Terminator movies.

Why? Because AI angst has a new focus. This is the rapid advance of recursive self-improvement (RSI), a process where the technology rewrites its own code, which could theoretically result in more advanced models that humans may struggle to control.

Even if the imminent extinction of humanity may have been hugely exaggerated, anxiety is still mounting over AI’s malign effects on employment and national security. At his AI summit this week, King Charles called on industry bosses to find solutions.

US President Donald Trump may have dismissed the AI annihilation predictions as ‘a hoax’. Yet the increasing calls for regulation of the technology have hit the shares of giants such as Alphabet, owner of Google and the AI research laboratory Google DeepMind.

Alphabet is working with Anthropic and OpenAI, the maker of ChatGPT, to allay concerns about AI

The fears have even sparked whispers of a delay to this autumn’s hotly anticipated $2 trillion stock market flotation of Anthropic, the company behind Claude.

The apocalypse alerts have added to the dismay caused by this week’s rise in US interest rates, which will raise borrowing costs, hitting the profit margins of tech and other companies.

Does this alarming scenario spell out a final warning for investors in tech shares and the global funds largely composed of these stocks? Or should it be seen as another message that backing AI may be lucrative, but will be more hair-raising than in the past?

This is your guide if you are having nightmares about the Terminator movies’ rogue AI, Skynet, destroying your savings.

AI starts fight back 

Alphabet is working with Anthropic and OpenAI, the maker of ChatGPT, to allay concerns. 

Anthropic, OpenAI and xAI, a division of Elon Musk’s SpaceX, which are usually bitter rivals, are even advocating stricter safety checks and a pause in the development of new systems.

Dario Amodei, Anthropic’s chief executive, declared: ‘We Must Pace the Frontier.’

Meanwhile, Mark Zuckerberg, boss of Instagram and WhatsApp owner Meta, and Jensen Huang, chief executive of semiconductor giant Nvidia, claim that AI firms ‘face significant liability’ if their products cause damage.

Huang was one of the biggest industry figures at the King’s summit. But some analysts are saying that the calls for a pause are not principally motivated by the desire to avert catastrophic harms. 

Chinese AI players are reported to be only months behind Anthropic and OpenAI in the evolution of their systems.

One analyst said that tougher guardrails risk enabling the Chinese to pull ahead of the US at a time when Beijing and Washington are battling for AI supremacy. A pause would allow the fuss to die down, allowing Anthropic and the rest to proceed largely as before.

Meanwhile, other figures suspect that the bout of AI despondency may be swept away by the prospect of potential gains.

Shares in Nvidia, the poster child of the AI boom, may have been under pressure over the past week, but they are still more than 13,000pc higher than a decade ago.

Ryan Lightfoot-Aminoff, an analyst at asset manager Kepler Partners, acknowledges that fears will persist of a repeat of the dot.com bust of 2000 in which the Nasdaq lost 80pc of its value.

But he argues that many investors will be keen to stay on board, given that the high-profile victims of that crash, such as Amazon and Alphabet, are today’s leaders.

Action plan 

Lale Akoner, global analyst at investment platform eToro, says that there is likely to be a lot more volatility in tech stocks.

Even if you can take this on the chin, Akoner suggests that you assess the extent of your exposure to tech. The sector should form only a part of your portfolio and should encompass a wide range of businesses.

A glance at your funds may reveal that you are betting only on Alphabet, Apple, Amazon, Microsoft and Nvidia. These are among the top ten holdings at the popular £6.3billion F&C investment trust, for example.

The AI bonanza has been fuelled by the prospect of payback from the tech giants’ expenditure on building and equipping data centres, memory systems, semiconductors and much more. By 2050 as much as $31.6trillion will have been invested worldwide.

But, if the spending starts to slacken, Akoner says that this is the sign that you should reevaluate your commitment to tech.

In the meantime, there could be benefits if Anthropic, Alphabet, OpenAI and the rest opt to pause development of new AI models.

This would allow the businesses to earn extra revenue from their existing products.

Also, if stricter safety standards are imposed, this could boost cybersecurity companies such as CrowdStrike and Palo Alto.

Data centres would be even busier than at present, which would be good news for the firms involved in the construction of these facilities and the provision of cabling, energy and water.

Lightfoot-Aminoff says that two trusts, Allianz Technology and Polar Capital Technology are the route to back the AI industrial revolution. I have some cash in both these trusts and am declining, for the time being, to be spooked by the forecasts of impending destruction.

Anthropic opportunity 

This week’s predictions could incline Anthropic to put off its flotation.

But if you feel Claude will largely prove to be a force for good, you can become an investor straight away by putting some money into the following UK trusts: Baillie Gifford US Growth, Pantheon International, RIT Capital Partners, Schiehallion and Scottish Mortgage (where I am also an investor).

All own a slice of Anthropic, suggesting that they are suitable only for the adventurous.

Britain may not have produced a company with the scale and success of Anthropic.

But several British FTSE 100 and FTSE 250 names – such as Computacenter, Diploma, Halma and Oxford Instruments – are driving the AI revolution.

Backing these names is another way to spread your risk. An investment in AI may be an essential part of your portfolio.

But, in the future, the tone of the debate over this technology will be more Skynet than soothing. Be on your guard.

DIY INVESTING PLATFORMS

AJ Bell

AJ Bell

Easy investing and ready-made portfolios

Hargreaves Lansdown

Hargreaves Lansdown

Free fund dealing and investment ideas

interactive investor

interactive investor

Flat-fee investing from £4.99 per month

Freetrade

Freetrade

Investing Isa now free on basic plan

Trading 212

Trading 212

Free share dealing and no account fee

Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.