Investors have warned that the artificial intelligence stock market bubble may be about to burst, arguing that the technology is yet to prove that it will live up to its expected value.
One investor warned that the hype is reminiscent of the period before the dot-com crash, when the stock market burst in the early 2000s as inflated valuations of internet companies collapsed.
“These historically end badly,” James Ferguson, founding partner of the UK-based macroeconomic research firm MacroStrategy Partnership, said on an episode of the podcast Merryn Talks Money with Bloomberg reporter Merryn Somerset.
“So anyone who’s sort of a bit long in the tooth and has seen this sort of thing before is tempted to believe it’ll end badly.”
Ferguson argued that AI is still “completely unproven,” and that if it cannot be trusted it is effectively “useless.”
He added that AI is unreliable, pointing to the tendency of hallucinations, referring to when the systems produce incorrect or misleading information and present them as fact.
Ferguson suggested that the company Nvidia, a leading producer of AI computing chips, might be overvalued, the same way dominant companies of the dot-com era were.
“What multiple of sales is Nvidia a good deal on if you think that it might only have—no matter how stratospheric the growth rate at the moment—if you think that it’s probably not going to be a player in a decade’s time?” he said.
A robot appears on stage as Nvidia CEO Jensen Huang delivers a keynote address in San Jose, California. Some investors have warned that the AI stock market bubble may burst.
Justin Sullivan/Getty Images
“Forget Nvidia charging more and more and more for its chips, you also have to pay more and more and more to run those chips on your servers. And therefore you end up with something that is very expensive and has yet to prove anywhere really, outside of some narrow applications, that it’s paying for this,” he said.
When contacted by Newsweek, an Nvidia spokesperson declined to comment.
Roger McNamee, a prominent venture capitalist and investor, made similar comments to CNBC, pointing to a recent Goldman Sachs report that warned capex for AI was too high given the lack of high value use cases.
“The amount of capital investment in this sector, which is billions of dollars now, it’s so large that it’s almost unimaginable that we’re going to get a rate of return on it over the next few years that justifies the amount invested already, much less what they’re putting in,” he said.
He said that the “mania” around these stocks was profitable right now, but that it is based on some assumptions about what AI is capable of that haven’t been proved yet.
“I just think an investor needs to take a moment and ask themselves how much longer they want to be on this ride, and whether there is any evidence that the products are actually going to deliver value on a large enough scale to justify the Investment we’ve already made,” he said.
He explained that something of great value may still emerge from the industry, but it might look different from expected.
“You just want to be prepared for the possibility that this could be disrupted and it may take a lot longer, and that the thing that comes out the backside may be different from which you’re looking at today, which means different winners, different use cases, and all of that,” he said.
Uncommon Knowledge
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
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