Tech Stock Investors Made Fortunes—Are AI Apocalypse Fears a Signal to Sell?

Halloween may still be a month away, but investors are already feeling spooked after industry leaders issued fresh warnings this week about the potential dangers AI poses to humanity.

The perceived scale of the threat has prompted comparisons with Skynet, the self-aware artificial intelligence system and villain of the Terminator films.

The latest source of unease is the accelerating development of recursive self-improvement, or RSI. The process involves AI systems rewriting their own code, potentially creating increasingly capable models that humans could find difficult to control.

Predictions of humanity’s imminent extinction may be greatly overstated, but concern is nevertheless growing over AI’s possible effects on jobs and national security. At his AI summit this week, King Charles urged industry leaders to find answers.

US President Donald Trump has dismissed predictions of an AI-driven annihilation as ‘a hoax’. Even so, mounting demands for tighter regulation have weighed on shares in major technology companies, including Alphabet, the owner of Google and AI research group Google DeepMind.

The anxiety has also fuelled speculation that Anthropic could delay its eagerly awaited stock market flotation this autumn, a listing that could value the Claude developer at $2 trillion.

These warnings have compounded the market’s unease after US interest rates rose this week. Higher rates increase borrowing costs and threaten to squeeze profit margins across the technology sector and beyond.

So does this unsettling outlook amount to a final warning for investors holding technology shares and global funds heavily exposed to them? Or is it simply another reminder that investing in AI could prove highly profitable, while also being far more nerve-racking than before?

For anyone losing sleep over Skynet from the Terminator films destroying their savings, here is a guide to the latest AI fears and what they could mean for investors.

AI starts fight back 

Alphabet is working alongside Anthropic and OpenAI, the company behind ChatGPT, in an effort to ease concerns about the technology.

Anthropic, OpenAI and xAI, an Elon Musk-backed division of SpaceX, are normally fierce competitors. Yet all three are calling for stricter safety checks and a pause in the development of new AI systems.

Dario Amodei, Anthropic’s chief executive, summed up the company’s position in a declaration titled: ‘We Must Pace the Frontier.’

Mark Zuckerberg, the head of Instagram and WhatsApp owner Meta, and Jensen Huang, chief executive of chipmaker Nvidia, have also warned that AI companies ‘face significant liability’ if their products cause harm.

Huang was among the most prominent industry figures attending the King’s summit. However, some analysts believe the calls for a pause may not be driven solely by fears of catastrophic damage.

Reports suggest Chinese AI companies are now only months behind Anthropic and OpenAI in the development of their systems.

One analyst warned that imposing tougher safeguards could give Chinese rivals an opportunity to overtake the US in the race for AI dominance, as Beijing and Washington compete for technological supremacy. A temporary pause could instead give the controversy time to fade, allowing Anthropic and its peers to continue much as before.

Others, meanwhile, suspect the current wave of pessimism about AI could quickly recede if investors remain focused on the potential financial rewards.

Nvidia, the leading symbol of the AI boom, has come under pressure over the past week. Yet its shares remain more than 13,000pc higher than they were a decade ago.

Ryan Lightfoot-Aminoff, an analyst at asset manager Kepler Partners, accepts that investors will continue to fear a repeat of the dot.com crash in 2000, when the Nasdaq fell by 80pc.

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.