Premium'A Larger Pie For All': Citadel Securities On The Economics Of Intelligence
Authored by Frank Flight via Citadel Securities,
Recent price action reflects a realization that the market has undersized the compute requirements of AI adoption. This aligns with the argument we introduced earlier this year that the constraints on AI were likely to be physical in nature, centering on compute and power scarcity, rather than model ability as the limiting frontier. We sense early incremental shifts away from the heavy consensus of AI displacement towards a more nuanced understanding of how AI will affect the economy. We see four key components of this: 1) compute demands scale quadratically with task complexity 2) which in turn may limit the likelihood of generalized labor displacement but instead makes 3) AI more likely to be a complement to labor and existing workflows (/software) which in turn may imply that 4) the theoretical and historical grounding that technological enhancements are generally good for growth, hiring, wages and living standards – as demand is generally elastic. We see the more significant challenge to the AI theme as one of front loaded and massive investment requirements, which sit juxtaposed to a payoff structure that accrues over decades in terms of true adoption and productivity gains. Ultimately, many iterations of technological innovation have kept real-per-capital GDP growth at around 2% for the last 125yrs, and we’d hope AI is powerful enough to extend that trend further, despite aging populations (material displacement offset) and deglobalization.