Americans are increasingly worried about the implications of artificial intelligence for their future. According to a recent Quinnipiac poll, eight in ten express concern about AI, while only a third are excited. More than half believe it will harm their daily lives, and seven in ten think it will reduce job availability.
Despite this skepticism, Americans are about to have AI forced into their pension plans and investment portfolios, whether they like it or not. This will bind their financial futures ever more tightly to the risky, multibillion-dollar race by tech moguls to develop machines that can mimic human thought and take over cognitive tasks.
SpaceX's Record-Breaking IPO
This week, Elon Musk's SpaceX is launching a massive $75 billion initial public offering (IPO), the largest ever. Priced at $135 per share, it values the company at $1.77 trillion, placing it among the ten largest companies globally by market capitalization. Although SpaceX currently generates most of its revenue from internet access, it needs the capital to fund Musk's vast AI ambitions, including launching datacenters into orbit.
This IPO is just the beginning. Both Anthropic and OpenAI have filed for their own IPOs later this year, adding two more multitrillion-dollar AI behemoths to major US stock indices.
Impact on Index Funds and Retirement Plans
Even investors who avoid buying these stocks directly will end up owning them through 401(k) retirement plans or market index funds. These funds, designed to reflect the entire market, are forced to purchase AI shares in proportion to their weighting in indices like the Nasdaq and S&P 500.
Musk has been lobbying for SpaceX to be quickly added to these indices, which would compel index funds to buy the stock regardless of price, providing a significant boost. The Nasdaq has already changed its rules to fast-track large listings like SpaceX, and FTSE Russell has done the same. Standard & Poor's, however, is sticking to its rules, requiring SpaceX to post a profit, make a minimum number of shares available, and wait about a year before joining the S&P 500.
Currently, the SpaceX offering represents less than 5% of its shares, limiting its immediate impact. However, if SpaceX follows the pattern of other large firms after their IPOs, about half of its shares could be trading openly by the time it joins the S&P 500 next year. This would give it roughly a 1.5% share of the S&P 500's $60 trillion market capitalization, forcing index funds to invest hundreds of billions into Musk's quest to become the world's first trillionaire.
Risks of a Concentrated Tech Market
This is a risky bet. Musk, who has attempted to dismantle federal bureaucracy and helped dismantle USAID despite knowing it would lead to hundreds of thousands of deaths, will have sole control over a company on which many Americans' retirement may depend. He can follow his baser instincts without restriction.
The so-called 'magnificent seven' tech giants—Nvidia, Alphabet, Apple, Amazon, Microsoft, Meta, and Tesla—already account for more than a third of the S&P 500's market value. Investor sentiment on their massive AI investments has largely driven the entire equity market's fluctuations. Adding SpaceX, OpenAI, and Anthropic will give tech billionaires even tighter control over Americans' financial futures as they pursue their dystopian sci-fi dreams, free from government regulation.
Potential Silver Lining and Downside Risks
There may be a silver lining: having AI stock in retirement plans could offer a hedge for workers displaced by AI, giving them a stake in the new economy's fruits. However, the balance of risks is unfavorable. The hope that AI will boost productivity and prosperity remains unfulfilled. Claims of progress have not translated into significant productivity gains, and dystopian scenarios seem increasingly probable, while the economic rewards investors count on remain distant.
Money eventually tires and moves on. The Nasdaq recently fell more than 4% when a strong labor market suggested the Federal Reserve might raise interest rates. This reminds us that the AI-driven rally that has lifted the Nasdaq and S&P 500 could end abruptly—perhaps just after Musk's trillionaire moment.
Americans do not know what an AI-heavy future holds, but they have vivid memories of the pain from financial bubbles built on hubris. The 2008 financial crisis would pale in comparison to what would happen if the AI dream embedded in their investments turns into a nightmare.
