Trading firms develop derivatives tied to computing-power prices
Some technology employees are quitting their jobs after making so much money from the AI boom that they are hedging their companies’ stock. The departures are not moves to retire or pursue a passion project, according to The Wall Street Journal’s account of growing demand for protection against AI-trade risks.
The Wall Street Journal characterized the strategy this way: “It’s a striking sign of how nervous some investors have become about Wall Street’s multitrillion-dollar bet on artificial intelligence.” Even some of the people who profited from the boom are looking for ways to limit their exposure.
The hedging extends beyond individual employees. Investors and tech executives are seeking protection against a larger unraveling, according to The Wall Street Journal.
The backdrop is an AI trade that has been enormously profitable. The change described in the report is the arrival of recent disappointments, which have prompted a push for protection against a larger unraveling.
Options and credit-default swaps are the financial instruments cited for that protection. Investors and tech executives are turning to both as recent disappointments have increased demand for ways to limit losses.
One trader put the logic plainly: “I don’t think my house is going to catch on fire, but I still have insurance.” The comparison illustrates why participants can benefit from large AI-related gains while still buying protection against a larger unraveling.
Protection is also taking the form of new products. Trading firms are developing derivatives tied to the price of computing power, expanding the range of price-linked instruments available to market participants.
Gunjan Banerji reported on the growing demand for protection against the AI trade’s risks. His account covers individual departures from work, institutional hedging and the development of new derivatives, showing how the response has spread across the AI trade.
Other substantive items in The 10-Point newsletter
The same edition of The 10-Point also contained reporting on a South Carolina Senate race, Meta’s Muse, a disputed Porsche, midterm spending and young people in Dali.
Darline Graham’s Senate campaign. Darline Graham had just been sworn in to finish her late brother’s Senate term when she was in the Oval Office trying to coax President Trump to support Lindsey Graham’s Russia sanctions bill. Trump then asked Graham to run for a full six-year term, something she said she had not previously considered. Polls showed her tied with or trailing Democrat Annie Andrews, making South Carolina competitive in a way it had not been for decades. “It’s just been absolutely brutal,” Graham said, referring to the loss of her brother and competing in three elections in a span of months. Josh Dawsey spent the day with Graham on the campaign trail as she fought to keep her brother’s seat.
Meta’s Muse and Amazon. Amazon has long been the first stop for many online shoppers, but Meta built a personal AI agent called Muse. More than 10 million people in the United States and Canada set up Muse agents in its first month and a half, Meta said. Muse could disrupt Amazon’s model by finding and buying products, effectively bypassing the human browsing experience. The newsletter said Muse also had the potential to undermine advertising, one of Amazon’s most lucrative businesses. Amazon blocked Muse from shopping on its site shortly after its launch, citing safety concerns. Isabella Simonetti and Suzanne Vranica reported the item.
The disputed “Hippie Car.” The newsletter described a Porsche race car painted in a psychedelic swirl of purples and greens. Known as the “Hippie Car,” it beat Ferrari at Le Mans in 1970. The Wall Street Journal said masterpieces of motor sports history were selling for “Pablo Picasso prices,” while the car’s potential value remained unclear. Two owners think they have it: one purple-and-green Porsche is housed in a Philadelphia museum, and the other belongs to a former race car driver. With tens of millions of dollars potentially at stake, the newsletter did not determine which car was authentic.
Midterm spending. According to ad-tracking firm AdImpact, candidates and their backers are spending nearly the amount potentially at stake for the Porsche, making the midterm cycle the most expensive in history. The newsletter said some candidates had managed to stay dry amid a deluge of dollars, with some “dodging rodents and pawning power tools just to stay afloat.”
Dali and “lie flat.” In recent years, Dali, in southern China’s Yunnan province, became known among young Chinese people as a place to escape the rat race and “lie flat,” meaning to give up on work or generally do the bare minimum. The Wall Street Journal’s Hannah Miao visited the town, which young people call “Dalifornia,” to understand the disillusionment among young people in the country. She found that many of the drifters were tired of doing nothing and wanted to get back to work.
The newsletter was curated and edited by Bharbi Hazarika and Natasha Dangoor in collaboration with Editor in Chief Emma Tucker.