The Lex Newsletter: some concerns about AI look artificial

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Dear reader, 

There is a noticeable difference in the way tech companies talk about artificial intelligence to investors and the way they talk about it to the public. In the last set of quarterly earnings from the likes of Microsoft and Alphabet, the focus was on opportunity and revenue contribution. Yet both Microsoft and Alphabet were among the companies that co-signed a public letter warning that AI posed an extinction-level risk to humanity. So which is it?

A generous answer is that it could be both. But Silicon Valley venture capitalist Bill Gurley made a good point in an interview this week in which he pointed out that if tech companies were truly terrified about the dangers of AI, they would stop working on it.

Instead, money keeps pouring in. The warnings have, however, encouraged early action by regulators. This week, the US, China and other countries pledged to work together to assess the risks posed by AI. 

Careful analysis of new technology is a good thing. Regulatory attention may prevent harmful use. But it is notable that restrictions can put newcomers at a disadvantage. It is something incumbents have lobbied for in the past. Crypto platform FTX petitioned for regulation before it collapsed and its creator was found guilty of fraud, for example.

Early movers in AI want to maintain their lead. Regulation could help. Microsoft’s investment in generative AI bot maker OpenAI has put it ahead — though it does not have its own internal team. Lex wonders whether it might one day opt to buy the rest of OpenAI to keep that advantage.

Default choice

Both the US and UK opted to leave interest rates unchanged this week. In the US, they are at a 22-year high. In the UK, a 15-year high. Rising rates lower pension scheme liabilities. But not all savers benefit. 

There is a divide in UK workplaces between employees who will receive the certainty of a set income via defined benefit pension schemes and those whose retirement rests in the hands of markets thanks to defined contribution pension schemes. Many savers in DC schemes opt to join lifestyle funds, which funnel cash into higher-risk equities when employees are young and “safer” bonds when retirement looms. A calculation by Lex found that those whose money was put into bonds at high prices now face the prospect of lower than hoped for retirement funds. Lex readers also pointed out that shifting into bonds in your sixties is the sort of decision that does not tally with average longevity.

Other savers are missing out too. UK banks have been told to get a move on and pass high rates on to consumers. Lenders have another good reason for making deposit accounts more attractive. Early next year, they must start to repay Bank of England funding used to finance emergency loans at the height of the pandemic — aka the Term Funding Scheme with additional incentives for small and medium-sized enterprises.

Flagging energy

Israel is not a big gas exporter. But it is ambitious. For buyers, it is a useful source of non-Russian gas. Last weekend, the country awarded new exploration licences to operators including Eni and BP. But conflict with Hamas puts natural gas exports at risk. Already, Israel has shut off its Tamar field.  

Will the war lead to a global energy shock? The World Bank warns that oil prices could reach $157 per barrel if it has an impact on the wider oil-producing region. Tipping over $150 would set a new record. But this is just one of several risk scenarios. The forecast is for oil prices to steady at $81 in 2024.

Across the world, the energy transition will continue. Lex notes that BP is in a good position for this, despite the unsettling departure of chief executive Bernard Looney, poor quarterly earnings and takeover speculation. The Resilient Hydrocarbons division is truly resilient. Not a description that can be applied to struggling Danish renewable energy developer Ørsted.

Variation on a theme park

I have been to only one of the US’s big theme parks and it was an odd experience in which the park was full of adults instead of children. Amusement parks did well in 2021 thanks to excess savings and people’s desire to get out and about. Demand is expected to flag. Park operators Cedar Fair and Six Flags have announced an all-stock merger that looks like a smart and defensive move. Parks have high fixed costs. Scale helps. Combining the pair’s 42 locations is a good idea.

Other stuff I liked this week

Forget Fight Club and Reality Bites, Chandler Bing was the real face of Generation X. 

Too much content, not enough consequences — is this the end of Marvel? 

Enjoy your weekend,

Elaine Moore
Deputy head of Lex