The financialisation of AI is just beginning

Yet in another sense, data—or at least the chips on which it is stored and manipulated—still lags far behind oil. Graphics processing units (GPUs) play a tiny role in financial markets. True, some loans use them as collateral, but they remain hard to price and to sell on. There is practically no market for GPU derivatives, which allow traders to parcel up and offload risks (such as that of a price crash). Chips and the processing power they generate (or “compute”) are therefore ripe to be financialised by Wall Street—just like oil, housing and myriad other assets before them. A wave of new innovators hopes to do just that.

Take OneChronos, a fintech firm established in 2016 to make share-trading more efficient. The company aims to launch a market for compute, on which bundles of goods can be auctioned, by June. It has paired up with Auctionomics, founded by Paul Milgrom, who won the Nobel prize for economics in 2020. Then there is Ornn, which has launched an index tracking the prices of chips, including Nvidia’s popular H100. The startup also plans to sell put options—derivative contracts that pay out if prices fall sharply—on physical GPUs.

Eventually, the combination of trusted benchmarks and liquid derivatives markets could support bonds collateralised by baskets of GPUs, much like those backed by bundles of individual loans. Few investors possess detailed knowledge of Californian consumers or Ohio’s office market. Many nevertheless snap up bonds collateralised by credit-card debt and commercial mortgages.

To build such a market, some fearsome obstacles must be overcome. Perhaps the biggest one is that the most advanced chips tend to lose their value fast, as even whizzier ones come to market. Morgan Stanley estimates that this could prompt Alphabet, Microsoft, Meta and Oracle to record depreciations worth $680bn over the next four years. Any estimate like this is subject to huge uncertainty, since no one can know for sure how the technology will progress. This represents a big risk to buyers of loans collateralised by GPUs that might unexpectedly tumble in price. Even now, for the biggest buyers of chips, comparing the most recent models to those of a decade ago is like comparing a supersonic jet to a horse and cart.

Then there are the difficulties with trading compute. Users need to be fairly close to their data centres which, unlike fuel, cannot be shuttled from one place to another. And so prices vary a lot from region to region, since it is not easy for trade flows to match supply to demand.

If such obstacles could be overcome, however, the prize of more sophisticated financial instruments would be a hugely valuable one. Derivative contracts could help allocate risks—that particular types of chip suddenly become worthless, for instance—to traders who actually want to take them, in exchange for a premium. That might allow companies with business models that depend on GPUs to worry less that their assets might rapidly become obsolete and focus more on improving their operations. Conversely, compute-hungry startups would find it easier to borrow if their loans could be collateralised with chips, then bundled together with others and sold as bonds.

Perhaps the frenzy of innovation in GPUs, and hence their risk of unexpected depreciation, will have to cool a little before financialisation can proceed at full throttle. But American executives eyeing its potential benefits have good cause for optimism. Plenty of them worry that competitors, especially in China, could emulate their scientific and technological achievements. They can probably afford to fret less about threats to America’s exceptionalism in the field of financial engineering.

In an era of hardware and hard power, it is easy to forget the importance of the financial architecture that can join up fragmented markets. The ability to price, bundle and transfer risk is an enormous advantage. It can unlock capital, lower borrowing costs and thereby speed the development of entire industries. And financial engineers, especially in the West, have become very good at doing so. If chips can be financialised, Wall Street will do it.