AI stocks decline following industry calls for development slowdown

The Australian sharemarket slipped in early trade on Tuesday, led lower by the big four banks and mining heavyweights following another jump in oil prices, which sent US bond yields to a three-year high amid expectations of rate hikes in the world’s largest economy.

The S&P/ASX 200 was down 53.8 points, or 0.6 per cent, at 8696.10 as of 10.47am AEST, with seven of its 11 industry sectors declining. The ASX closed flat on Monday. The Australian dollar was trading at US71.36¢.

Oil pushed higher as traders weighed risks to Middle East supplies, with a critical Saudi Arabian pipeline still offline after attacks. Brent advanced above $US107 a barrel after adding 1 per cent on Monday, as the East-West pipeline — a workaround for Strait of Hormuz flows — was shut last week, with Saudi Aramco yet to say how long the disruption will last.

Iron ore and copper giants BHP and Rio Tinto were down 2.1 per cent and 1.6 per cent, respectively, while Fortescue Metals dropped 0.8 per cent, amid rising bets that the rise in energy costs will prompt the Federal Reserve this week to raise interest rates for the first time since 2023 to rein in inflation.

Gold producers slumped as bullion hovered around $US4290 an ounce, a five-week low, having fallen more than 1 per cent the previous session. The prospects of higher energy prices stoking inflation have piled pressure on the Fed to make its first rate increase in three years, with traders pricing in a 92 per cent chance of it happening when the central bank meets in the coming days. Higher borrowing costs are typically negative for gold, which doesn’t pay interest.

Northern Star Resources fell 3.4 per cent, Evolution Mining slid 3.7 per cent and Newmont was down 2.5 per cent.

Financial stocks, which make up about a third of the ASX, also struggled, with Commonwealth Bank slipping 1 per cent, National Australia Bank and ANZ Bank both dropping 0.8 per cent and Westpac shedding 0.7 per cent.

Tech stocks, however, shrugged off AI losses on Wall Street, with software makers Xero, Wisetech and Technology One up 2.8 per cent, 3.1 per cent and 1.3 per cent, respectively, while Megaport jumped 2.2 per cent and Life 360 rallied 7 per cent.

On Wall Street overnight, the S&P 500 fell a relatively modest 0.5 per cent. More stocks rose within the index than fell. The Dow Jones Industrial Average dropped 0.3 per cent, and the Nasdaq composite sank 0.6 per cent after clawing back most of an early loss of 1.3 per cent.

AI stocks have been under pressure in the US because of worries their prices shot too high in the frenzy around the technology. The concerns jumped to another level over the weekend after one of the industry’s leading voices, Anthropic CEO Dario Amodei, called for a deliberate and global slowdown in the development of AI.

He cited safety issues, including the risk that AI becomes capable of leading a swarm of agents that could take over the entire internet within six to 12 months.

Nvidia, whose profits have soared because its chips are helping to train AI models, sank 3.4 per cent and was the heaviest weight on the market because of its massive size.

SpaceX, which gets a chunk of its business from AI, fell 2 per cent after Elon Musk said over the weekend that he agrees with Amodei. Softbank Group, the Japanese giant that is a major investor of OpenAI, lost 10.7 per cent in Tokyo after OpenAI’s Sam Altman likewise supported the concept of a slowdown.

Altman also said in an interview with Fortune that the company behind ChatGPT would likely wait until next year for a sale of its stock on Wall Street. That would delay a potential gusher of cash for Softbank and other early investors in OpenAI.

In South Korea, the Kospi index dropped 3.3 per cent due to losses for its two most influential stocks, Samsung Electronics and SK Hynix.

President Donald Trump played down the need for his administration to check the development of AI, saying he worried about ceding his country’s edge over China in a global competition and that winning would help address the risks from the advancing technology.

Even with many voices inside and outside the AI industry calling for a slowdown to protect humanity, Trump said on his social media network Monday that the only guardrail it needs “is a STRONG AND SMART (High IQ!) PRESIDENT, and the U.S.A. has that, in spades!”

Helping to limit Wall Street’s losses on Monday were several software companies that tumbled earlier on worries AI-powered competitors would undercut their businesses.

Intuit, the company behind TurboTax and QuickBooks, rose 5.5 per cent. Autodesk, whose software helps designers, climbed 7.8 per cent, and Adobe added 5.3 per cent.

Brent has jumped from less than $US72 in early July as doubts rise that the United States and Iran can come to an agreement that would allow oil tankers to freely exit the Persian Gulf through the strait again.

While the prospect of a de-escalation of war in Iran may have dimmed, ING commodities strategists Warren Patterson and Ewa Manthey wrote in a commentary on Monday that the situation is still fluid and “sizable” volumes of oil have still been moving through the strait.

Such upward pressure on inflation has much of Wall Street expecting the Fed will hike its main interest rate on Wednesday at the end of its next meeting.

Besides high inflation, worries about rising debt for the US and other governments and other concerns have sent longer-term Treasury yields to their highest levels in years.

The yield on the 10-year Treasury briefly breached the 5 per cent level for the first time in nearly three years. That’s up from 4.96 per cent late Friday and just 3.97 per cent before the war with Iran began.

But the 10-year yield later pulled back to 4.98 per cent after oil prices came off their highs for the day.

The 10-year yield has not consistently remained above 5 per cent since the turn of the millennium, and its jump has already made it more expensive for U.S. households and companies to borrow. That includes the highest average long-term mortgage rate in more than 14 months.

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