Ken Griffin on AI, Midterm Elections and Fiscal Policy

So there's no doubt that over the past year, it's remarkable. It's been a year, and in that year the advancement in AI models has been absolutely tremendous. And there's no doubt that in a number of fields AI is literally game-changing. I did give a speech or a talk at Stanford, where I discussed the fact that work that used to take our PhDs and Masters four to six weeks to complete, high-level white-collar jobs, now you press a button on a keyboard, wait a few hours, and there's the exact same answer. And I will tell you that when I went home after seeing this, it was a Friday. It was actually a very depressing moment because you're seeing all kinds of things, right? You're seeing the threat to white-collar jobs playing out. As a business owner, you're seeing your competitive moats be filled in by bulldozers.

And then at the same time, you're thinking that this will be a golden era for entrepreneurs, for new business formation, for the young entrepreneurs in this country. What a golden opportunity this is. So you really have all three emotions unleashed as you watch this rapid development unfolding. And I think that all three have real implications for our economy. For those who have careers that are in the sweet spot of what AI can do, we as a country need to embrace reskilling. You know, for example, if your expertise is in translation from English to German, for example, you probably have already lost your job. And that's a difficult job to find a near substitute for. So that's where we as a nation need reskilling. And we need it in a profound way. And there's talk about it. There's no action on that front.

For corporate America, the filling in of your competitive moats means you've got to move your feet faster. You're going to have to innovate faster. You're going to have to create more customer value faster and figure out how to take cost out faster. But actually, that's all really good for the American consumer, the American public. That force will force corporate America to really step its game up, and the American consumer will win on the back of that. And then for this moment where we have this golden age of entrepreneurship, what a great thing for our country, because when you have people who start small businesses, it does wonders for employment, and in particular, people who have tarnished resumes have a shot to get really good jobs. Startups do something very important in our country. Startups will hire somebody who wants to work hard, who doesn't have the perfect pedigree. And for that individual, getting a chance to join a startup gives them a whole new lane to build their career in. And we don't talk about that enough in America. We don't talk about the importance of startups and how they really help to jumpstart careers, particularly for people who have impaired pedigrees. And then these startups will unleash an enormous number of new products that you and I have never even thought of.

I think it is, because the history of our free market is that we go through transitions like this. And to be clear, these transitions, they do cause the incumbents to face real challenges. And it is hard on people, but ultimately our lives are better. There's no doubt that you and I would rather live right here in 2026 than in 1926. There's just no comparison. And this will be part of the story of how we write. The year 2126 will be what happened at this moment in time with AI.

So at the end of the day, most of our business is fundamental-based investing. In fact, I would argue that the core of our business is actually research. It's almost like journalism. Like, can you get the story right? Can you get the narrative right? And trading is how we monetize our research. So research is the core of the business. Do we understand the business model? Do we understand the TAM? Do we understand the economics? Do we understand management incentives? And bits and pieces of that AI can help shed some light on, but ultimately that narrative is still assembled by a person. And then what multiple of future cash flows or future earnings to ascribe to that business? How does it compare to other opportunities that you have to deploy your capital? But ultimately, I still firmly believe that the vast majority of the alpha that we create is a testament to the creativity, the ingenuity, the analysis of the people on our team who conduct fundamental research. And then trading is how we monetize that. And in fact, the trading part of the work has actually become the most automated part, the most forward-leaning technologically. Because if you can monetize your research well, you can run bigger positions and extract more alpha from your ideas. That's a really important part of any portfolio manager's job, is how efficiently can I trade to maximize my return on my research?

So look, I think this market is actually experiencing people doing research right now. For the last couple of years, if you were on the thematic program of we're going to spend hundreds of billions or a trillion dollars in data centers, we're going to build compute at a scale never seen before, which companies in that story are chokepoints and supply chains that will have abnormally high margins, and who will be the big winners from this transformation, will be the Microsofts, who will be the gatekeepers to the foundational models, like who's going to earn the economic rents? But in some sense, like, I'm just going to buy them all. I'm going to buy them. I'm going to buy the hyperscalers. I'm going to buy the chip companies. I'm going to buy businesses that make things I'd never even heard of five years ago in Korea and Taiwan and in Japan. And now we're reaching a point where people are becoming more discerning. Like, we do realize that we are seeing extremely high margins in DRAM and HBM and areas where there are real supply constraints. But people are now starting to look out two years, three years. How long is this going to last? And in particular, and I don't want to be doom and gloom, but GPUs, like airlines, have a very low marginal cost to run. Like the incremental seat on an airline that's not full, if you can sell that ticket for twenty dollars, you're making money in that seat. And that's one of the reasons that the airline industry is such a nightmare, is because the moment you have overcapacity, pricing goes into freefall. We saw this actually with the telecom buildout back in 2000, right? We built all this dark fiber. And the minute we built more fiber than we had need for, sorry, it wasn't meant to be dark. It was never turned on. It was never lit up because we didn't need it. We built more fiber than we had demand for, and the price of telecommunications just went straight down.

Well, that's the question mark, which is if we reach a point where the provisioning of GPUs exceeds demand for GPUs, marginal pricing will actually go into freefall. And that really upends all the investment assumptions that people are working with today. That's issue number one. And issue number two is I think people are taking a step back and saying, what is the useful life of a GPU? Like right here, right now, there's people that are earning extraordinary pricing on GPUs that are five or six years old that probably doesn't persist for another five or six years. And so there's a growing set of concerns that I can't give the same capitalization rate or the same revenue models to year seven, eight, nine of a chip in the future that maybe I was using twelve months ago. So I think we're really grappling with just how far will this demand carry us in the marketplace? And the second issue is, the first conversation was like all the upside of AI. And there's another narrative that's important. Corporate America has been very uneven in its ability to extract value from AI models. And the most sophisticated companies in the United States are becoming very sophisticated at what parts of their business do they need to pay extremely high pricing for the state-of-the-art models from OpenAI and Anthropic, and what part of their business can they run on open-source models at a fraction of the cost. If you look at some of the companies that have really just done incredible things with AI internal to their four walls, they are quickly becoming very thoughtful on maximizing the return on their spend. And I think all of corporate America is looking at their bills from Anthropic and OpenAI and going, okay, we need to think about how to make sure we're getting productivity out of this. And they will in many areas. But in some areas you've got a lot of waste and people are going to have to pivot around that.

There is. I mean, clearly you just answered the question as you posed it, right? Like reading the witness. Sorry. Yes. You like the witness? Let me just say yes. Yes, there is. And the question will come down to how much will OpenAI, sorry, will Anthropic, how much will Anthropic make their models a must-have? So for example, you know, in life sciences, will Anthropic truly reach the point where they will help to unlock the cures for cancer or other life-threatening diseases? Will they make themselves completely like a necessity in every pharma company in the world? And you'll pay any price for their know-how and their tools, because it will unlock the healthcare treatments in the next century. So what we don't know is how, as these models become more intelligent, how much are they able to demand extremely high pricing, because they help to actually solve the problems that have vexed humanity for centuries. Because people don't know the answer to that.

Well, so the big picture is there's almost certainly bubbles within this moment in time. And any radical transformation of our economy is generally intertwined with a bubble. All right, I remember back in 1999, 2000, and the metrics that we used to value internet companies. And let's be clear, some of these internet companies had pretty fanciful business models. But I mean, I just wish I had kept my Amazon stock from that moment in time. And the internet, which was, you know, which was the great bubble, could it be more of a part of our daily life today than it is? I mean, like I've told this story before, but I was, I updated my Xbox for my son a few years ago. He was thirteen at the time. And he looks at me and he goes, Dad, you lived before the internet existed. And I said, I did. I did. I was born after the dinosaurs disappeared. But yes, there was life before the internet. And now that's like an incomprehensible thought to a twenty-year-old. So these bubbles, if we're going to use that word, often coincide with these giant technological transformations, or the railroads, for example. But what's left in the wake of these bubbles, if we want to use that word, is often game-changing for the world. And the companies that are on the other side of that bubble are the market leaders for decades to come.

So everyone's favorite go-to answer when they're losing money, it's hedge funds are deleveraging. Okay. In fact, in the last ten years, I've seen the entire industry leveraged to zero at least ten thousand times. I mean, it's like every day there's a phone call with somebody goes, oh, it's got to be hedge fund deleveraging. I mean, just imagine this, hedge funds have recovered back up. All right. So, and the reason that people love that answer is it actually washes your hands of accountability. Right. Like the money you can sort of, oh, hedge fund deleveraging, like, no, no, no, no, no, no. Let's take a step back. What prices are changing and why? What don't we understand? What is playing out that we don't get? Because the minute I start to use an excuse, I actually stop learning. Right. So I always want the hedge fund deleveraging to be answer number ten on the list of answers. And I want one through nine to be, okay, what don't we understand? What does somebody else get? What are the guys at Capital Group or Fidelity or Wellington, like what thoughts have they connected that we don't see? Somebody else here knows the story and we don't know it. And let's go figure it out. And if we can't, if we exhaust like every path we possibly can, okay, let's not talk about who might be deleveraging, but that's like option ten of the list, not option one.

So we have been involved in a number of large portfolio restructurings over the last twenty years. You know, whether it was Amaranth restructuring the energy portfolio back in roughly 2006 or so, or in 2007, several other trades that have had less attention or notoriety. But Situational Awareness was in a position where they, as managers of assets, as fiduciaries, they needed to thoughtfully raise cash. And we gave them a holistic solution to meet their needs, to raise cash and to protect a substantial year-to-date gain. Like this was an important win for their investors. And let's be clear, you know, they're up significantly for the year. When it's all said and done, they've been through a bit of a journey. But their investors have to be pleased that even with the turmoil they faced, they're up for the year. When we're looking at a situation like that, we're trying to understand what forces have been in play to create the events that have unfolded. And as Situational Awareness found itself in a more difficult situation, there's no doubt that a number of the more fast-money accounts in the market would start to front-run what they would have anticipated Situational Awareness or its contemporaries would be doing. Like a classic playbook in finance, you think somebody is in trouble and you start to try to anticipate the moves they're going to need to make, and whether it's a defensive or offensive decision, you actually start to turn a possibility into a crystallized reality, right? So even if all you knew was, gee, you know, people that are watching this, I think are in trouble and they're going to be de-risking. So I'm not going to buy those stocks or I'm going to trim my exposures. You start to transform a possibility into a reality. And Situational Awareness found themselves in a position where, again, out of an abundance of caution, they needed to raise cash. Now, what we have found in moments like that is that when you acquire a portfolio in that market environment, you generally get a pretty sharp reversal in price as confidence is re-established and the anxiety about a portfolio suffering an unexpected, quick divestiture ends. And in some sense, we deployed our capital on the back of that theory. And we did okay. We did okay. But it was a complicated portfolio to buy overnight. We did the trade in less than twenty-four hours, and managing the risk profile of that portfolio did take several days of trading in the marketplace. And that's one of the things that we do well, is we're very accustomed to analyzing portfolios and how do you cost-efficiently bring down your key risks in the portfolio. And once you can nail down the key risks to the portfolio cost-effectively, then you can start to pare out of individual positions. And we've got the systems, the know-how, and the people internally that can make those moves happen on a chessboard.

It would be a bit surprising to see another moment like this actually happen, in my opinion. You know, they were caught in a pretty significant price downdraft caused by both the announcement of CME, other chatter in the marketplace about the growth rate of some of the foundational model companies, some large pension plans that were reshaping their portfolios at that very moment in time. They got caught, I wouldn't say the perfect storm, but they got caught in three mid-sized storms. And, you know, clearly they must have had too much leverage in the portfolio at peak, caught in three mid-sized storms, pushed pretty hard in the marketplace and found themselves in a bit of turmoil. I would not manage my business for that to happen any time in the foreseeable future again. I mean, firms will always, there will always be some member firms that find themselves in a tough spot. I mean, Citadel was in a tough spot in 2008, the height of the financial crisis. You know, Morgan Stanley had not achieved their funding with the Japanese and had failed. I don't think I'd be on stage today. Like every firm in financial services, if you survive long enough, part of your history will be a moment in time of despair. Like if you survive long enough, every leveraged institution will have a footnote in their history of when their back was against the wall.

I really like the last conversation better. I'm sure there's an AI angle in there.

Well, I mean, first of all, I think it's important to take a step back. The U.S. political process in the midterms is a check and balance on the party in power. All right, so the Republicans, President Trump, they will almost certainly lose one or both houses, or both legislative branches, the House and the Senate. They're both, you know, the House is almost in a really tough spot, and the Senate, it's going to be really close. All right, let's just be right to the point. And that's just part of the normal political cycle, right? There are a number of candidates in the House and Senate who I have supported in this cycle, many of whom I've supported for many cycles. You know, people I think represent values that are important to the future of our country. And there are obviously candidates that we might be less enthusiastic about that perhaps I don't support. And to be clear, you know, it's not limited to just Republicans. You know, I was one of Rahm Emanuel's biggest supporters in Chicago when he ran for mayor. I thought Rahm did a fantastic job as mayor. I had the notoriety of being an elite bundler in the United States for both parties in an election cycle. We did an early fundraiser for President Obama during the primary. He was my senator in Illinois. And I thought it was important for my team members to have a chance to meet with this person who I thought could be the future of the United States. And he came in and absolutely knocked the ball out of the park. So I think, you know, number one is I want all my colleagues at Citadel to be involved in politics. I want all my colleagues to think about politics in America. And in my firm, you know, roughly a slight majority are probably Democrats. And while that would leave the Republicans in the minority, and that's okay. I love the fact that there are good, healthy debates that take place in our hallways, but it's never a point of friction. But this is what I think. I think this is what I think we should look like as a people, that we have good, healthy debates around who are the right people to run our country. And to be clear, every one of my colleagues who supports Democrats, like I really hope that they, in supporting Democrats, do what I do on the Republican side, which is try to support the candidates who have the right values, the right perspectives, who put our country first and who care about the issues I think we all agree on, like K-12 education, or how do we have safe streets, or how do we have a strong national defense? How do we have good alliances around the world? And there's lots of areas that we can find common ground on between our two parties that are important to the future of our country.

Okay, so that aside, let's talk about the midterm. The president's going to have some challenges here. There are parts of his policy that have been very unattractive to the American people. You know, for example, the war on Iran is very unpopular. I think he's done a very poor job of explaining why. I think it's important that we wake up in a world where Iran does not have a nuclear weapon. I just think that's of existential importance to our country. I think the president has not made that case in a powerful, meaningful way to the American people. I think that the way that we deal with illegal immigrants is disgraceful. I think if you've come to our country at a point in time when our borders were open, you didn't view yourself as breaking the law at that moment in time. And you came in with millions of people. If you are here with your family or by yourself, and you are gainfully employed and you are working to find a better life for your family, there needs to be a way to stay in our country. It may not be a path of citizenship, but it's a path to being a contributing member of our society, and we need to grow our economy. Like, this is what's lost in Washington. If we're going to make good on Social Security, Medicare, Medicaid and other entitlements, we need to grow our economy. It's just that simple, and hardworking people are a big part of how we're going to make that happen. And then I think that the tariff battles with Canada, with Europe, with our allies has just been a disaster. I talked about this when he first started this in his presidency. To be blunt, like, I hate to say it, but I've been right. It's been pro-inflation. It has certainly taken supply chains around the world and severed them. And we're not going to industrialize efficiently in our country. Unemployment's low. Like, if you have this dream of an industrialized America, number one is most people don't want to live that dream. They don't want to be in factories making Nikes and T-shirts. They want to wear those. I was actually a comedian that came up with that line. I have to give credit where credit is due. And then we, you know, what we should really be doing is embracing robotics. You know, one of the reasons that I gave a recent gift of three billion dollars to Carnegie Mellon University is their leadership in robotics. We want to reindustrialize America to be a really industrialized America with robotics running our factories. Like, that's forward thinking. That's how our country secures greater independence from the rest of the world on items that are important to our national interests. And then, of course, I think some of the things that you do really well, like closing the borders, that's long since been forgotten. But I got to tell you, I think the vast majority of Americans agree that closing our borders, which we were told for four years could not happen and it happened more or less overnight, has been a big win. So it's a mixed scorecard. We got a midterm here where the American people are going to vote. I hope they vote thoughtfully. The rise of the Democratic socialists, I'm not so worried about. You know, what's funny is I live in Miami. My friends who have connections or ties to the South don't even like, it's not part of the vocabulary. So this is just a New York bubble kind of thing. It's a New York, it's Illinois, it's Michigan, it's California. Bit of a bubble. And I will say, if you want to look at where socialism leads you, look at France last weekend. It's the socialist dream. The country spends sixty percent of its GDP at the government level. And yet the streets are awash in turmoil. It's heartbreaking. And by the way, Paris looked pretty damned similar to Chicago in 2021, 2022.

It's the future. I lived in Chicago. I can look out my window down at the Dior store. They were very efficient. They would take a van, they drove right through the front glass, create a giant space for fifty people to run in. They could empty the store in about three hundred seconds. All right. Like, we're maybe more efficient than the French, even at looting. But Paris, I think Paris would be a real wake-up call to every single young American. France is the dream that the left talks about, the liberal safety net, safety net-rich socialist Europe. And here's France. That dream, that dream is the nightmare I left from Chicago. That dream doesn't belong in our country. You know, our economy, a society where it comes down to how much you can take from others. First, they'll take your property, and then they'll take your personal rights. That's not a society that we want to create.