HOW AN AI BUBBLE COULD RUIN THE PARTY

IF AI REVENUE DOESN'T CATCH UP WITH AI SPENDING, GLOBAL STOCKS WILL BE AT RISK.

- BY JIM EDWARDS

NVIDIA'S JENSEN HUANG says he doesn't believe we're in an artificial intelligence bubble. Amazon's Jeff Bezos says we probably are in one. OpenAI's Sam Altman, the human face of the AI boom, has also invoked a bubble, adding, “I do think some investors are likely to lose a lot of money.”

This, in a nutshell, is the narrative of the entire global stock market right now and the conundrum that no tech CEO or asset manager can avoid addressing: Is AI a bubble or not?

Much is at stake.

Since the current bull market began in October 2022, roughly 75% of gains in the S&P 500 have come from just seven stocks—Alphabet, Apple, Amazon, Meta, Microsoft, Nvidia, and Tesla. Those companies, known as the Magnificent Seven, have a combined market cap of about $21.5 trillion as of mid-November.

Their strategies, Apple's perhaps excepted, are heavily dependent on AI. But if AI does not deliver the revenues or the efficiencies that Big Tech expects, the fallout in stocks will likely be severe—because the world's investable assets are currently concentrated in AI and AI-adjacent stocks to an unprecedented degree.

The S&P 500 has risen 14.7% this year, repeatedly breaking new record highs. But 40% of the index's value comes from the 10 biggest stocks within it, all but one of which are tech companies.

Most of those companies, in turn, are pouring vast sums into AI for the development of new data centers, large language models, and the massive amounts of electricity they guzzle. Goldman Sachs estimates that capital expenditure on AI will hit $390 billion this year and increase by another 19% in 2026. Bank of America is even more bullish: It projects that AI capex will hit $1.2 trillion in 2030.