The coauthor of the viral Citrini Research report that rattled markets shares the investing strategy to guard against AI disruption

• The finance pros who rattled markets with their AI thought experiment last month are out with a new update.
• The writers built on their outlook for AI disruption that spooked investors.
• Coauthor Alap Shah told Business Insider about his strategies for investors if the crisis they imagine plays out.

You know markets are on edge when a piece of fiction sends stocks tumbling.

That's exactly what happened on February 22, as tech stocks dropped on a blog post from a little-known market research firm called Citrini Research about how AI could disrupt markets and the economy by 2028.

The report's coauthor, Alap Shah, says he did not expect the report to attract the attention it did. The Substack post, titled "The Global Intelligence Crisis," laid out a vision for the future in which AI leads to widespread white-collar job losses, a consumer-led recession, and a plunge in the S&P 500.

Shah published another installment on Wednesday, sharing more thoughts about what he expects to see from the AI boom.

"Three weeks ago, the essays we authored clearly struck a nerve," Shah said. "The response exceeded anything we anticipated, and the market impact was neither our expectation nor our intent."

Shah laid out what he calls the "synthetic short," essentially a system-level bet against the human-driven economy that will emerge as AI overtakes entire industries, compromising economic growth in the ways he and Citrini laid out in the first post.

"Ultimately, what we're saying is, 'hey, this short exists.' We want to be more explicit in calling it out, and then we want to start talking about policy solutions that can ensure that instead of a real risk of a crash, we figure it out."

The scenarios outlined by Shah and Citrini pose a unique challenge for investors. The AI trade essentially propped up the stock market for three years after the debut of ChatGPT, as companies scaled AI endeavors and Wall Street cheered them on.

But if the scenarios imagined by Shah and Citrini play out in any way similar to how their viral report predicted, AI will ultimately be a drag on markets.

"The AI complex and the consumer economy are increasingly on opposite sides of the same trade. That is not sustainable and is not something that the AI complex, investors or society should want," the latest report reads.

Shah, a veteran of the financial and tech spaces, shared some strategies for investors to guard against these losses.

In his view, the most strategic way is to still be long AI, specifically the companies powering the revolution, primarily those building semiconductors.

"At a high level, the cleanest way to get access is to buy semiconductor stocks, because that is the underlying substrate through which all the AI is built, as well as other parts of the technology complex," he told Business Insider.

Shah highlighted the VanEck Semiconductor ETF as the cleanest way to gain access to booming AI chipmakers with relatively lower risk than buying single names. He sees semis in stark contrast to the software industry, which he thinks poses a clear risk for investors due to recent AI disruptions.

His advice for investors trying to tell the AI winners from the losers is to look closely at where a company's revenue comes from.

"If a company gets its revenue from the AI complex, like semiconductors, for instance, that is obviously an AI winner," he stated. "If a company gets its revenue from consumers, there probably will be a lot of risk, because the consumer is going to be under pressure."

Shah added that if the scenario they envisioned comes to pass, he sees high risk for companies in the financial services sector and other intermediaries that facilitate transactions between humans.

"Those sorts of businesses we think are going to be under a lot of pressure, because AI makes the value of intermediation a lot lower and agents can transact with other agents at much, much lower costs than humans transacting," he added.