AI Investors Have Overlooked Obvious Risks

Prior to the US midterm elections on November 3, financial markets had been treating generative AI as some kind of unstoppable force that could not be hampered by higher interest rates or political and social resistance. But now reality may be setting in. LONDON—In a private talk that I gave in early September, I pointed out that optimism about AI is widespread in the financial and high-tech worlds, but almost nowhere else. This struck me as odd, because those in finance should know that rising interest rates—especially longer-term rates—will complicate things. Just as tighter financial conditions have tested the scale and depth of the market’s optimism in past investment cycles, so might they do so again. Thus, I suggested that the underlying inflation outlook would be among the most important indicators to watch.