US discussion around AI often centres on displacement, but the text shifts the focus to business formation and diffusion, arguing that the US advantage lies in converting new tools into new companies quickly. Small businesses are positioned as the main transmission channel because AI can lower minimum efficient scale, letting founders pool functions across roles and clear expansion hurdles earlier. The piece also frames the employment impact as non-linear: leaner start-ups may use fewer staff per firm, yet a higher rate of company creation could offset that lower labour intensity.<\/p>\n
On the data, US small businesses account for nearly 44% of GDP and employ more than 60 million workers, while new business creation has risen 24% since ChatGPT launched. Sequoia figures cited show the median seed-stage start-up moving from five employees to four in Q1 2023, though the narrative acknowledges tighter funding conditions at the time. Citadel\u2019s analysis combines more than 2.3 million CPS microdata records from January 2022 to March 2026 with Budget Lab AI exposure scores across 541 occupations, finding AI-exposed roles increasingly hired outside their \u201chome\u201d industries and growing fastest in areas that previously had the lowest concentration of such workers.<\/p>\n
We believe the market is still missing the true AI story, which is less about large-cap tech and more about small business formation. This is America’s “hustle premium” in action, creating a broader and more resilient economic base than current valuations suggest. This points to potential outperformance in small-cap indices that are not yet reflecting this productivity boom.<\/p>\n
The latest Census Bureau data for Q2 2026 confirms this, showing a 4.5% rise in high-propensity business applications, the seventh straight quarterly increase. This surge aligns with the idea that AI is lowering the barrier to entry for entrepreneurs. We think this trend has more room to run, supporting the long-term health of the real economy.<\/p>\n
From a trading perspective, this suggests volatility in the broader market may remain subdued. With the VIX hovering below 15, we see the relatively elevated volatility in the Russell 2000 as an opportunity. We should consider selling puts on the Russell 2000 (IWM) to collect premium while expressing a bullish view on this underappreciated growth engine.<\/p>\n
The real opportunity may be in relative value plays, betting on a catch-up trade for small businesses. Historically, broad productivity booms, like in the late 1990s, eventually lifted the entire economy, not just the technology leaders. We are positioning for this rotation by using options to favor the Russell 2000 over the Nasdaq 100 for the coming months.<\/p>\n
The bear case of AI-driven job displacement appears too simplistic. The June 2026 NFIB report showed a surprising jump in hiring intentions among small firms, with many citing technology investment as the driver. This supports the view that while leaner start-ups may hire fewer people initially, the sheer volume of new companies being created is more than offsetting this effect.<\/p>\n
We are also seeing this AI dividend diffuse into sectors far beyond technology, from logistics to consumer services. This trend of “non-home” hiring of tech-savvy workers is creating efficiencies across the board. Therefore, we are looking at buying call options on industrial and consumer discretionary ETFs, which we believe are priced for a slowdown that may not materialize.<\/p>\n\n\n\n