AI Bubble? Opinions are divided on the trillion-dollar question in technology
Investors are wary of signals that demand for artificial intelligence is declining or that spending sprees are not producing the expected results.
Investment in AI, which has surpassed government initiatives such as the Manhattan Project and the Apollo program, is changing global technology and shifting market focus to a handful of giant companies, but it is also creating the risk of financial bubbles.
Here is a list of opinions of industry executives, economists, investors, and analysts on this topic:
MORTEN WIEROD, CEO ABB
“I don’t think there is a bubble, but we are seeing some constraints in terms of construction capacity that is not keeping up with all the new investment,” Wierod told Reuters on Oct. 16.
“We’re talking about trillions in investments,” he said. “This will take several years to implement because there are not enough people and resources to build all this.”
DENIS MACHUEL, CEO ADECCO ADEN
“There’s really a disconnect right now between this huge supply of AI and the way companies are actually incorporating AI into their core processes,” Machuel said in November.
The Swiss staffing group’s joint venture with Salesforce CRM could help reduce the risk of an AI bubble by encouraging companies to use the technology more visibly, he added.
SUNDAR PICHAI, CEO ALPHABET
“I don’t think any company will be immune, including us,” Pichai said in a BBC interview published on November 18, when asked about how Google would deal with a potential bubble burst.
He said the current wave of AI investment was a “remarkable moment” but acknowledged there was an “element of irrationality” in the market, and also warned of “irrational exuberance” during the dotcom era.
JEFF BEZOS, FOUNDER AND CHIEF EXECUTIVE OF AMAZON
“When people are as excited as they are now about artificial intelligence, for example, every experiment gets funded… And investors have a hard time amidst the excitement in distinguishing between good ideas and bad ideas,” Bezos said at Italian Tech Week on October 3.
“Bubbles like banking bubbles, crises in the banking system, that’s bad… Industrial bubbles aren’t that bad, they can even be good because when things calm down and you see who the winners are, society benefits from the discoveries.”
BANK OF ENGLAND
Global markets could fall if investor sentiment worsens over the prospect of AI, the Bank of England said on October 8.
“The risk of a sharp market correction has increased,” the BoE’s Financial Policy Committee said in a quarterly report, in its sharpest warning to date about the dangers of an AI-induced market downturn, and adding that the risk of an adverse impact on the UK financial system from such a shock was “substantial”.
BRYAN YEO, CHIEF INVESTMENT OFFICER AT GIC
“There’s a bit of a hype bubble going on in the early-stage venture space,” Yeo of Singapore’s sovereign wealth fund said in a panel discussion at the Milken Institute Asia Summit on October 3.
“Any startup company with an AI tag will be rewarded at a large multiple of its small earnings… This may be fair for some companies and may not be for others.”
JOSEPH BRIGGS, ECONOMIST AT GOLDMAN SACHS GLOBAL ECONOMIC RESEARCH
The multibillion-dollar flood of investment flowing into AI infrastructure in the US is sustainable, allaying growing concerns that spending sprees in the sector could become excessive, Briggs said in a note on Oct. 16.
While the overall macroeconomic case for AI investment remains strong, he cautions that “the ultimate winner for AI remains unclear,” as rapid technological change and low switching costs have the potential to limit returns for first-time investors.
PIERRE-OLIVIER GOURINCHAS, CHIEF ECONOMY OF THE IMF
The surge in AI investment in the US will probably be followed by a dotcom-like crash, but it is unlikely to be a systemic event that would weaken the US or global economy, Gourinchas said on October 14.
“It’s not financed by debt, and that means if there’s a market correction, some shareholders, some equity holders, may suffer losses.”
JENSEN HUANG, CEO of NVIDIA NVDA
“There’s been a lot of talk about an AI bubble. From our perspective, we’re seeing something very different,” Huang said during a call with analysts in November, noting how many cloud companies want his company’s chips.
SAM ALTMAN, CEO of OPENAI
“Are we in a phase where investors as a whole are too excited about AI? My answer is yes,” Altman told tech outlet The Verge in August.
“Someone is going to lose a huge amount of money. We don’t know who, and a lot of people are going to make a lot of money.”
MICHAEL BURRY, INVESTOR AND FOUNDER OF SCION ASSET MANAGEMENT
“Big Short” investors have placed bearish bets on Nvidia and Palantir PLTR.
Last month, in his first X post in more than two years, Burry warned of a bubble, raising investor concerns over rising spending in the AI and technology industries.
CHEY TAE-WON, CHAIRMAN OF SK HYNIX 000660
“I don’t see a bubble in (the AI industry),” the head of a South Korean conglomerate that owns a leading memory chip maker said in December.
“But when you look at the stock market, it went up too fast and too high, and I think it’s normal for there to be some periods of correction,” he said, adding that AI shares had risen beyond their fundamental value.
UBS
Nearly as many investors who feel we are in an AI bubble are also maintaining their investments in the sector, UBS equity strategists said on Oct. 14.
“Most feel we are in an AI bubble, but it is so far from the peak of the bubble that about 90% of people who say we are in a bubble say they are still investing in many AI-related areas.”
Source: Reuters
