Citrini report co-author urges AI tax after report sparks sell-off

Governments should consider taxing artificial intelligence to cushion the effects of sweeping job losses, according to Alap Shah, co-author of a Citrini Research report that warned about tech disruption and fueled an AI scare trade.

The smarter AI gets, the more jobs it can replace, Shah, chief investment officer at Lotus Technology Management, said in a Bloomberg TV interview.

A related hit to consumer spending would imperil the economy, he said, adding that governments should consider policies such as taxing incremental or windfall gains from AI.

Shah sees chipmakers, data centers, and foundation labs as the main beneficiaries of the AI trade.

At risk are intermediation businesses like insurers and banks.

His firm had short positions in some of the companies cited in the report, he said, while owning “a lot” of semiconductor stocks poised to benefit.

Market shock after “AI scare trade”

The AI “scare trade” rippled through markets on Monday after the weekend report from Citrini Research warned about the technology’s disruptive impact on the global economy.

The note, which laid out hypothetical scenarios set in the future, highlighted food delivery and credit card companies as vulnerable — spurring a selloff in delivery, payments, and software stocks.

The S&P 500 fell 1% while iShares Expanded Tech-Software Sector ETF, an exchange-traded fund focused on software, tumbled 4.66%, bringing its drop from a peak in September to around 35% on concerns AI could cannibalize earnings.

International Business Machines Corp. saw its worst drop in 25 years.

Shah said he was surprised by the market reaction.

“I thought there was going to be a small reaction — it was definitely larger than we expected.”

Labor market concerns intensify

The debate comes amid growing uncertainty over AI’s impact on the labor market.

While some fear mass layoffs, others point to prior technological advances that have spawned new industries and jobs.

Shah estimates AI could cut white-collar employment by 5% over the next 18 months.

Over the next five years, these jobs in the US will be a key gauge of AI’s effects, with the impact likely to show up fastest there given its dynamic labor market, he said.

“It’s much easier to fire folks than it is in other parts of the world,” Shah added.

Winners, losers and volatility ahead

According to Shah, the AI boom could continue to create divergence across industries.

Infrastructure providers tied to computing power are positioned to gain, while companies that rely on human-driven services face disruption risks.

He also expects continued turbulence in equities as investors reassess business models.

In the near term, he expects further market swings, including in software companies, as traders assess the long-term impact from AI.

“We are entering a really highly volatile time in the markets,” he said.