President Biden wants to regulate artificial intelligence (“AI”).
And he’s trying to do it without passing new legislation.
No debate on the floor of Congress. No voting from the folks you elected to represent your state in Washington.
Instead, he’s done it with the stroke of a pen via an executive order.
And Biden isn’t acting alone. President Obama has his fingerprints all over this. ABC News reports that the former president helped draft the new order.
It’s called the Executive Order on Ensuring the Safe, Secure, and Ethical Development and Deployment of Artificial Intelligence.
But it may as well be called the Executive Order to Keep Big Tech Companies Rich.
Today, I’ll show you why. We’ll also look at what it means for us as tech investors.
First, let’s have a look at what the executive order covers.
In short, it requires more transparency from AI companies about how their models work.
Here are a few of the actions it wants to see go into effect…
Developers of the most powerful AI systems will have to share their safety test results and other critical information with the U.S. government
AI companies will have to develop standards, tools, and tests to help ensure that AI systems are safe, secure, and trustworthy
AI companies will have to establish standards and best practices for detecting AI-generated content and authenticating official content
That all sounds fairly reasonable.
So why do I say it should be called the Executive Order to Keep Big Tech Companies Rich?
Because now, the federal government will be involved with any company developing AI.
And Biden’s executive order is just the opening salvo in what I predict will be a much bigger battle to bring AI companies to heel.
To understand what I mean, you must grasp how this new policy was put together.
Behind the scenes, Obama has been holding meetings with the largest AI industry players.
Think Microsoft, Google, Amazon, Meta, and OpenAI.
According to media reports, this was about making these companies aware of the national security issues around AI.
But it’s more about how they can maintain their control over a technology that’s critical to their future profits.
The official term for this is regulatory capture. But I prefer to call it slamming the door behind you.
That’s when a group of powerful companies works with the government to pass regulations to keep out new competitors.
We’ve seen this already in the pharmaceutical, tobacco, and auto industries.
Dominant companies in each of these industries have worked hand in glove with Congress to write new regulations. These make it more costly for new competitors to enter these markets… in the name of safety, of course.
For example, cigarette makers supported strict rules on packaging and testing required for new products.
On the surface, stricter rules don’t seem bad. But the goal was to increase the barrier for new competitors by forcing them to hire teams of scientists and lawyers before they sold a single cigarette.
The goal is to cause just enough fear and panic among the public so that the industry in question becomes regulated, but not banned.
And that’s what’s happening here with AI.
Silicon Valley venture capitalist Bill Gurley put it best at a VC conference organized by the tech-focused All-In Podcast in Los Angeles in September.
Gurley – who was an early investor in Uber, Grubhub, and Zillow – got the audience to chant, “Regulation is the friend of the incumbent!”
Specifically, he’s concerned about companies moving away from open-source AI models toward proprietary ones.
As a reminder, open-source software allows users to freely access, modify, and distribute the source code. And critically for AI models, it allows users to tailor models to their needs.
Proprietary software, by contrast, restricts access to the source code. This allows the companies that make the models to restrict access to them.
As Gurley told the conference audience…
There’s a really scary thing in this AI space. The incumbents that are running to meet with […] the government are spreading something that I don’t think is accurate or fair. They’re spreading a negative open-source message. And I think it’s precisely because they know it’s their biggest threat.
Why would they do that?
If the software that powers ChatGPT and other AI chatbots is open source, more startups will be able to innovate and challenge incumbents.
And Gurley isn’t the only high-profile tech investor on the warpath over this.
Elon Musk was an early investor in OpenAI, the company behind ChatGPT. In February, he posted this on his social media platform, X (formerly Twitter)…
OpenAI was created as an open-source (which is why I named it ‘Open’ AI), non-profit company to serve as a counterweight to Google, but now it has become a closed-source, maximum-profit company effectively controlled by Microsoft. Not what I intended at all.
Musk is referring to Microsoft’s $13 billion investment in OpenAI, which has allowed it to integrate ChatGPT into its software services.
Or take Marc Andreessen. He created the first commercially successful web browser, Netscape Navigator. These days, he’s a general partner at Silicon Valley VC firm Andreessen Horowitz.
In June, he warned of…
CEOs who stand to make more money if regulatory barriers are erected that form a cartel of government-blessed AI vendors protected from new startup and open source competition.
And this isn’t just important for Silicon Valley VCs. As tech investors, we should take note.
One thing is clear from all of this…
The opportunity in AI is big enough for the tech elite to band together and shut newcomers out… or at least slow them down.
That may limit competition. But it won’t limit demand for AI. That’s why you should invest in the “brains” of AI.
One of the easiest ways to play it is by investing in the “brains” of AI – advanced semiconductors.
Today, I’m sharing a new chipmaker recommendation with Near Future Report subscribers. Its technology is being used to make most of the high-end chips on the market. And it’s already pioneering technology for the next even faster generation of chips. But despite the excitement around AI, it’s trading at a 20% discount to its fair value.
That discount won’t last long, which is why you need to act quickly. If you’re subscribed to my Near Future Report advisory, you’ll get all of the details later today.
And if you’re not a subscriber, don’t worry. The second best option is to buy the VanEck Semiconductor ETF (SMH).
This exchange-traded fund (ETF) holds a basket of chipmakers. It offers you broad exposure to growth in AI applications.
Regards,
Colin Tedards
Editor, The Bleeding Edge
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
