Has the AI bubble burst?

Nvidia's market value just hit $5 trillion. Tesla shareholders signed off on Elon Musk’s $1 trillion pay package. OpenAl is reportedly eyeing an IPO that could give it the same trillion-dollar tag despite never turning a profit. Are these the telltale signs of a market top?

- WILSON SY

US tech giants that fueled the AI boom are facing their first real test as valuations stretch to dizzying heights. A growing chorus of warnings from financial heavyweights Morgan Stanley, Goldman Sachs, JPMorgan and Capital Group has investors questioning whether the AI frenzy has reached its breaking point.

Wall Street’s warning signs

“I think that there will be a lot of capital deployed that will turn out not to deliver returns,” Goldman Sachs CEO David Solomon told attendees at last week’s Global Financial Leaders’ Investment Summit in Hong Kong. Solomon said that the markets are due for a 10 percent to 20 percent drawdown in the next 12 to 24 months.

Morgan Stanley’s CEO Ted Pick echoed the concern, saying that investors should “welcome the possibility” of a 10 percent to 15 percent market pullback. Meanwhile, Capital Group CEO Mike Gitlin noted that earnings are strong but “what's challenging are valuations.” He added, “We’re somewhere between fair and full, but I don’t think a lot of people would say we're between cheap and fair.”

Earlier last month, JPMorgan CEO Jamie Dimon told the BBC that “he was far more worried than others” about a serious market correction in the next six months to two years. He said the market is pricing in a 10 percent correction, but he thinks it could be closer to 30 percent.

‘Big Short' investor makes $1 B bet

The bubble concerns intensified when Michael Burry, the hedge fund manager made famous in “The Big Short” movie for predicting the 2008 housing market crash, disclosed massive bets against two AI giants. According to regulatory filings released last week, Burry’s Scion Asset Management bought put options worth approximately $1.1 billion against Nvidia and Palantir Technologies — with $187.6 million in puts on Nvidia and a staggering $912 million in puts on Palantir.