The forces driving the threat of robot overlords get a morality check.
May 26, 2026 at 12:22 AM EDT
By John Authers
· It looks like peace — or surrender — in the Strait or Hormuz.
· Markets love this; crude, inflation breakevens and implicit rates all down.
· The pope is concerned about AI’s effects on human dignity.
· China has a lead in physical AI even as the US leads in large language models.
· AND: A recommendation to enjoy The Drama.
It’s increasingly common for factory workers to wear smart glasses to record their hand movements, whether stitching or product packing. Their jobs seemed safely beyond the disruptive reach of artificial intelligence, but that sense of invincibility may prove fleeting. The data those glasses are gathering could become the training backbone for robots who replace those very workers.
That has profound implications for us all. To quote Ashish Narayan, a factory worker in India who uses the wearable technology to capture his daily tasks, “it feels like working in your own grave, while you make your own casket.” Even Pope Leo XIV has pointed out the risks to human dignity in an encyclical that promises to command debate:
The use of AI is never a purely technical matter: When it enters processes that affect people’s lives, it touches on rights, opportunities, status and freedom. Important and sensitive decisions — concerning employment, credit, access to public services or even a person’s reputation — risk being fully delegated to automated systems that do not know “compassion, mercy, forgiveness, and above all, the hope that people are able to change,” and can therefore give rise to new forms of exclusion.
To anyone shrugging off the influence of papal authority, it’s worth reflecting on Stalin’s mocking “how many divisions has the pope?’’ and the Soviet Union’s eventual fate in the Cold War. Leo has done his job as a religious and moral leader in forcing these issues onto the political and business agenda. Meanwhile, the rise of robots continues, and it will make money for investors — most likely, at present, in China.
Robots and autonomous systems, or physical AI, underpin the narrative that artificial intelligence will deliver a massive productivity boom. Adoption is in its infancy, but the green shoots look promising. Nvidia Corp.’s Jensen Huang last week called physical AI the next frontier, in which robots master the laws of physics and operate autonomously in the real world — a notion that Leo reminds us is not necessarily all positive.
Markets have seen such optimism before. This is the Global X Robotics & Artificial Intelligence ETF :
Robots, humanoids moving into mainstream, with China taking early lead
Source: Bloomberg
The current rally is impressive, but the sector did far better, relative to the market, in earlier waves. The pandemic boosted the appeal of automated systems that relied less on human interactions. But as the economy emerged from lockdowns, the enthusiasm for a world dominated by robots faded.
Physical AI is not recapturing the excitement around it from the pandemic
Note: Data is indexed to 100 on Sept. 16, 2016
Source: Bloomberg
What distinguishes the current rise, however, is the rapid advancement in technologies. And this time, it seems not to be dominated by US companies. It’s arguably most clearly visible in the rollout of robotaxis.
The pope’s fears of job destruction have merit, and he warned that job insecurity for people like Ashish Narayan “must not be evaluated solely in terms of efficiency, but in relation to the dignity of the worker, the right to sufficient remuneration and the genuine possibility of participating in society.” But the prevalence of AI-washing (exaggerated marketing claims) suggests skepticism is also warranted. A survey on AI adoption and labor displacement risks in the US by Morgan Stanley judged that baseline AI diffusion is twice as fast as the internet era without thus far triggering a large rise in unemployment or triggering a downturn. The greatest risk lies in allowing the diffusion to move too fast. Rapid adoption can create a skill mismatch that eventually overwhelms the flexibility of the labor market:
How close physical AI is to becoming part of everyday life depends on the limitations of the technology itself, the “brains” powering the robots. Envorso’s Adrian Balfour notes that physical AI typically must account for all human senses to create “a four-dimensional model of the universe around you.”
The physical space is really where artificial general intelligence (AGI) is going to come from. AGI is not going to come from ChatGPT… It’s not going to come from the written word, it’s going to come from the encapsulation of all the senses into an AI that’s physically incarnated in the real world.
However, Barclays’ Zornitsa Todorova points out that humanoids are fast leaving the research lab and entering the real economy. She notes that these machines, designed to look like humans, are intended to operate within the workplace using existing tools and workflows, not reshape it. With roughly 8 million factories and 2.8 billion buildings globally, it is cheaper and far more scalable to adapt robots to human environments than to rebuild the physical world around them.
Robots haven’t reached peak functionality, but Barclays argues that their progress, especially in the so-called three “Bs” of brains, brawn, and batteries, is remarkable. These technologies form what Barclays sees as one of the market’s biggest investment opportunities. Even as much of the current discourse focuses on the “brains” or “batteries” of humanoid robots, Todorova believes the real engineering challenge lies in the “brawn” — specifically, replicating the dexterity and autonomy of the human body. From the bank’s analysis, the brawn, dominated by actuators to convert energy into movement, accounts for roughly 50% of total humanoid production costs, compared with 35% for brains and 15% for batteries.
Mechanical systems and actuators — highly dependent on magnetic rare earths — represent the most critical link in the humanoid supply chain, as they ultimately determine whether humanoids can be manufactured at scale and deployed safely on the factory floor and in the household.
The US advantage in advanced semiconductors doesn’t necessarily therefore translate into physical AI. Capex is decisive in the race to create dominant large language models, which rely on huge computing capacity, but buys diminishing marginal returns in robotics. Noah Ramos of Alpine Macro argues that a bifurcated landscape is emerging, with the US leading the “brain” with chips and software, while China dominates the “body” with its manufacturing prowess:
The narrative that the US is clearly winning the AI race begins to fray. China’s dominance in rare earths, combined with its manufacturing superiority, will be difficult to challenge in the near term. That helps explain Washington’s increasingly hardline stance on restricting Beijing’s access to advanced semiconductors. It might also explain the recent surge in Chinese IT stocks. Under Trump 2.0, they have now outperformed even the US tech sector:
Physical AI might explain the recent surge in Chinese AI stocks
Note: Data is indexed to 100 on Nov. 5, 2024
Source: Bloomberg
The pope wants to “disarm” AI, which he says means “discrediting the assumption that technical power automatically confers the right to govern.” But while that will strike a chord with many, the arms race in robotics will continue.
—Richard Abbey
Last month, I offered a thought experiment. Would the world community ever stand for it if Britain decided to close the English Channel to shipping, and defended it with missile launchers on the White Cliffs of Dover? The answer was supposed to be “no,” and the relevance to the Strait of Hormuz was obvious.
It looks like that was wrong. If multiple reports are correct, the US and Iran are heading for a deal that reopens the Strait, with no change of regime or shift to the Iranian nuclear program in the first instance, and without measures that would stop Iran from charging for access to the Strait in future. From the point of view of the US role in the world, various Republican senators are right to characterize this as something very close to surrender. The destruction of the last three months will have won the US nothing. The implications for the end of Pax Americana, and for heightened uncertainty and expense in a realm of deglobalization, are troubling.
That doesn’t, however, change the fact that in the short run this is great news for markets. If tankers can start leaving the Persian Gulf again, that’s a huge deal. Prices for Brent crude to be delivered for December this year and June 2027 have registered a sharp drop, which the news amply justifies:
Crude markets are optimistic that an end to the blockage is in sight
Source: Bloomberg
With US, Japanese and British markets closed for holidays, the immediate impact was felt in Europe, an oil importer always badly exposed to the conflict. President Donald Trump’s preparedness to do this deal suggests that the US does indeed need the Strait, despite claims he made back in March; but he was undeniably correct that Europe needs it far more. The way that European and US macro data have diverged in the last three months, as measured by Citi’s economic surprise indexes, is truly astonishing:
War in Iran hurt Europe's economy much more than the US
Source: Bloomberg
The impact on German assets has been dramatic. Bund yields surged last spring when the new chancellor, Friedrich Merz, unveiled plans for a big fiscal splurge to fund rearmament, and rose even further after the war started. The latter jump was driven by a sharp rise in inflation expectations. Both went into sharp reverse on Monday:
The prospect of reopening Hormuz had an instant impact on German assets
Source: Bloomberg
It’s had a similar impact on expectations for the European Central Bank. With the full impact of the pause in supply yet to be reflected in growth, and a more plausible argument that the price shock is in some senses transitory, the belief is that the ECB might not have to hike three times this year after all:
Markets' initial response is that monetary policy needn't be as tight as feared
Source: Bloomberg World Interest Rate Probabilities
Assuming Hormuz is reopened swiftly, there are now reasons to hope that after a period to establish the damage done to inventories and supply chains, life and markets can pick up where they left off in February. But that’s not a given, just as a reopened Strait is still not a done deal. News reports of fresh US attacks on Iran brought the odds of a swift return to normal in Hormuz down sharply on the Polymarket prediction market:
Polymarket bettors still doubt the Strait will reopen next month
Source: Bloomberg, Polymarket
Oil only slightly retraced its losses in early Asian trading, while global bond markets held their gains, so financial markets seem less rattled by the reports. Traders would still take an ugly deal if it reopens the Strait; it remains unclear that enough politicians will agree.
Having wished everyone a good baking hot Memorial Day weekend, I’ve just suffered through four days of unremitting gray and damp, so I got that one wrong, too. One recommendation comes from it. We went to an actual cinema for the first time in a very long while and saw The Drama, a glittering black comedy in which a young couple are excitedly preparing for their wedding, and then the bride (Zendaya) lets slip that as a teenager she had once planned to hold a mass shooting at her school. It never pulls punches, it’s never too obvious, and it’s genuinely affecting and moving — while also asking some extremely relevant and uncomfortable questions about just why so many American kids want to murder their schoolmates. Many dislike it and I can see why. I thought it was great. And the experience of actually seeing a movie on a big screen still has a lot to recommend it.
More From Bloomberg Opinion
· The Two-Party Problem Is Getting Harder: John Authers
· What If the Strait of Hormuz Didn’t Reopen? Javier Blas
· The World Prepared for Ebola. Just Not This Ebola: Jason Gale
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— With assistance from Richard Abbey
This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.