Be ready for a savage stock market crash

Some writers here at The Motley Fool have been worrying about an AI-driven stock market crash. And it seems others are waking up to the risk because an AI doomsday Substack post has gone viral this week.

The post from Citrini Research even caused a number of stocks mentioned to drop sharply on Monday (23 February). These included DoorDash, American Express, and (fittingly) Monday.com.

What did this post say? And how worried should we be?

The AI revolution is paradoxical

The lengthy post in question — entitled The 2028 Global Intelligence Crisis — describes a fictional future where AI rapidly displaces human labour.

A negative feedback loop emerges where companies, facing margin pressure, replace white-collar workers with AI. This soon reduces consumer spending, leading to further layoffs.

Meanwhile, autonomous AI agents do more tasks for consumers (insurance renewals, travel booking, shopping, etc). Unlike humans, AI agents aren’t loyal to apps like Uber or Booking, so a huge amount of enterprise value is destroyed.

The S&P 500 starts crashing.

Jobs become harder to find and the crisis threatens the $13trn residential US mortgage market as white-collar incomes vanish.Â

The paradox here is that this scary scenario is only possible if AI truly succeeds, not fails.

Some perspective

As alarming as all this sounds, it’s important to remember this is just an imagined scenario/warning, not a prediction.

Second, the 2028 timeframe is deliberately provocative. There’s no conclusive evidence AI is causing massive layoffs, while the physical AI buildout is creating jobs. So the economy appears in no immediate danger.

Moreover, elected governments are not passive observers. If unemployment were to rapidly reach the 10%+ described in the Citrini piece, we would likely see regulatory intervention to slow the pace of AI deployment.

Further down the line, measures like Universal Basic Income or job-retraining programmes could be funded by AI productivity taxes.

Today, generative AI still hallucinates. In regulated industries (finance, law, medicine, etc), a human with the proper authority still has to sign off.

Finally, nobody can predict exactly when a crash will happen.

Diversification

But we should at all times be ready for a big crash, whether it’s generated by AI, a pandemic, a financial crisis or something else. As I see it, there are there basic things we can do to prepare for the worst:

Don’t panic
Build up cash to buy wonderful companies at lower prices.
Focus on diversification

This last part is crucial. In my portfolio, I hold AstraZeneca (LSE:AZN). To my mind, the pharma giant looks more likely to benefit from the technology than be disrupted by it.

AI drug discovery, for example, should significantly increase the chances of a drug candidate succeeding in trials, as well as lowering costs and boosting margins. The firm is already leaning heavily into the technology in research and development.

Admittedly, a forward earnings multiple of 19 isn’t cheap. If the company’s growth unexpectedly slows, the stock could sell off.

On balance, however, I’m bullish on AstraZeneca moving forward. It now has 16 blockbuster medicines (those generating at least $1bn in annual sales).

By 2030, itâs aiming for $80bn in revenue, up from $58.7bn last year, driven by its massive pipeline and valuable oncology portfolio.

I think AstraZeneca is worth considering today for a diversified Stocks and Shares ISA.

The post Be ready for a savage stock market crash appeared first on The Motley Fool UK.

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American Express is an advertising partner of Motley Fool Money. Ben McPoland has positions in AstraZeneca Plc and Uber Technologies. The Motley Fool UK has recommended AstraZeneca Plc and Uber Technologies. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.