Race for dominance artificial intelligence has become a costly competition that traps big tech companies in “something of a prisoner's dilemma,” one hedge fund executive said.
“You have to invest in it because your peers are investing in it, and so if you get left behind, you won't have a stronger competitive position,” said Tony Yoseloff, chief investment officer at hedge fund Davidson Kempner Capital Management, which manages about $37 billion. He spoke on Goldman Sachs' “Exchanges” podcast, published Friday.
He said spending trends affect more than just Silicon Valley. With the U.S. stock market dominated by a small number of mega-cap tech stocks, their behavior now influences nearly every investor.
Risk of “AI fluctuation”
Yoseloff doesn't dismiss AI as hype. Instead, he views it as a long-term view of technological change.
He noted that since the popularization of personal computing in the United States in the 1980s, it has taken about 10 years to see productivity gains in the workplace. And it took about five or six years of mass marketing online to see similar results.
If history repeats itself, the economic benefits of today's artificial intelligence boom may still be years away. But he said markets are acting as if a reckoning is imminent.
“So, I like to think about it this way: Will there be an AI wobble at some point? Will investors be concerned about how those capital expenditure dollars are invested?” – he said.
Yoseloff noted that the huge spending on AI is being driven by some of the healthiest companies in the world, which can afford to reinvest their cash flows. But public markets may not be so patient.
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“What happens when the market starts to question assumptions about what the returns will be from this?” he asked. “How patient will the market be with these earnings?”
Yoseloff compared the current moment with the previous one the era of “dot-com” and “fine fifties” extreme market concentration and enthusiasm for disruptive technologies and growth stocks.
Although these trends were based on real innovation, it took investors about 15 years to get their money back.
Yoseloff's comments came as wider debate on whether massive investment in AI in stock markets is leading to a bubble.
Some leaders, including OpenAI CEO Sam Altman, have warned against getting too excited about artificial intelligence, even as they recognize the technology's revolutionary potential.
“Are we at a point where investors in general are too excited about AI? My view is yes,” Altman told reporters in August, adding that it was also “the most important thing” to happen in a long time.
In late October, Microsoft co-founder Bill Gates compared the current situation to the Internet bubble of the late 90s and warned that “a lot of these investments will be dead ends.”
