AI will create largest displacement of human labor in the history of capitalism, says tech-focused hedge fund CEO. A lot of people will feel left out

For those worried about artificial intelligence replacing human workers in the years ahead, recent comments by a prominent technology investor will not assuage their anxiety.

AI is going to be the largest displacement of human labor in the history of capitalism, said Brad Gerstner, founder and CEO of investment firm Altimeter Capital, on a Monday episode of the Art of Investing podcast. Theres gonna be a lot of disruption that will cause a lot of anger. A lot of people will feel left out of the system.

Rather than a scenario in which companies suddenly lay off half their workforce, however, Gerstner foresees AI gradually affecting employment.

Its going to mean the rate of hiring will be much slower at companies than it was for the last 20 years, he said. By way of example, he added, If you have a 50% improvement in your productivity of your engineers, and youre growing the top line of your company at lets say 20%, you dont need to hire new engineers.

Altimeter invests in both private and public companies worldwide. Among its notable venture capital investments are Zillow (a technology real-estate firm), ByteDance (the Chinese internet giant behind TikTok), and Snowflake (a cloud-based data storage and analytics service for corporations).

In October 2022, Gerstner made waves by criticizing Facebook-parent Metain which his firm owns millions of shareswriting in an open letter that the company had lost focus and should reduce both its headcount and metaverse investments. Soon after, Meta laid off more than 11,000 employees, with more large layoffs to follow. (Meta shares are up more than 200% this year.)

Gerstners take on artificial intelligence and jobs contrasts with that of Nvidia CEO Jensen Huang, whose companywhich Huang describes as being always in peril despite a $1.2 trillion market capmakes the AI chips that tech giants have been racing to acquire this year. Huang argues that the impact of AI will likely be that, overall, more jobs will be created than destroyed.

My sense is that its likely to generate jobs, he recently told the Acquired podcast. The first thing that happens with productivity is prosperity. When the companies get more successful, they hire more people, because they want to expand into more areas.

A common line of thinking, said Huang, is that if a company improves productivity with AI, then it will employ fewer people. But that assumes a company will have no new ideas, he noted, and thats not true for most companies.

AI could also make it easier to launch companies with fewer people, leading to more entrepreneurs. Chamath Palihapitiya, CEO of Silicon Valley VC firm Social Capital, recently mused on the All-In podcast that it seems pretty reasonable and logical that AI productivity gains will lead to tens or hundreds of millions of startups made up of only one or two people.

Gerstner argued that with AI transforming the economic landscape, there will be clear winners and losers. He noted that its happened before with the advent of new technologies.

When we moved from horses to cars, if you were in the business of repairing horseshoes, you were put out of business, he said. If you were in the business of making carriages that were horse drawn, you were put out of business. You had to find your way back into the next thing.

His firms role in venture capital recently allowed it to see which public companies were poised to prosper from the AI boom, he added, noting that Altimeter Capital was having one its best years ever on the public markets.

The firm could see that ventures were spending heavily on pricey AI chips from Nvidia, as well as a need to get all this data unleashed in the cloud, he said. That allowed it to position the public portfolio around companies like Nvidia, Microsoft, Amazon, and Snowflake and to realize that there were going to be a bunch of companies on the losing end of that arrangement as well, he said.

Gerstner didnt beat around the bush about the negative impact AI would have for many companies and individuals.

The benefits of human progress are not equally distributed at all times, he said. Its really important to understand that there are losers in the game of human progress.

Nevertheless, he considers himself an American optimist and does not believe the best years of the U.S. are behind it. Hes currently pushing a legislative program called Invest America in which a private investment account seeded with $1,000 would be created by the federal government for each child born in the U.S.

At a time when the wealth gap is growing, he argued, such accounts would make young Americans more financially literate participants in capitalism who have witnessed the benefits of investing and compounding interest in their own lives. Another reason he believes such a program would be important, he said, is the job displacement AI will cause.

If theyre gonna experience the downside of AI, Gerstner said, they need to experience some of the upside.

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