AI Stock Bubble: Investor Sounding the Alarm

Tech Investor Warns on AI Valuations

A prominent UK tech investor has voiced his apprehension regarding the escalating valuations of AI companies, describing them as “disconcerting”. This comes amid growing worries about a potential bubble in the AI stock market.

James Anderson, now with Lingotto, had previously invested early in firms like Tesla, Amazon, Tencent and Alibaba. He stated that indications of an investment bubble were not apparent until recently, specifically with the substantial valuation increases announced by OpenAI (creator of ChatGPT) and its competitor, Anthropic.

Concerns over OpenAI and Anthropic

Anderson told the Financial Times that he was surprised there was little sign of a bubble in AI until recently. OpenAI is in discussions regarding a share sale that could value the company at $500 billion, a considerable jump from $300 billion in April and $157 billion the previous October. Similarly, Anthropic's valuation almost tripled, going from $60 billion in March to $170 billion last month. Anderson noted that the rapid and significant valuation increases of OpenAI, Anthropic and similar companies were unsettling.

Nvidia's OpenAI Investment Raises Questions

Anderson also expressed reservations concerning Nvidia's investment of potentially $100 billion in OpenAI. Nvidia, a crucial player in AI infrastructure through its production of computer chips used in AI model training and operation, boasts a stock market valuation of $4.5 trillion. The agreement stipulates that OpenAI will compensate Nvidia in cash for chips, with Nvidia investing in OpenAI in return for non-controlling shares.

Some analysts have drawn comparisons between this arrangement and vendor financing, where a company offers financial support to a customer purchasing its products. While Anderson stated his admiration for Nvidia, he indicated that the OpenAI deal gave “more reason to be concerned than before”. He alluded to practices prevalent during the dotcom bubble around the turn of the millennium, where telecom equipment manufacturers extended loans to customers, adding that the words “vendor financing” were not comforting. He clarified that although not identical to the practices of telecom suppliers in the late 1990s, there were similarities that made him uneasy.

Nvidia and OpenAI have been contacted for their comments on the matter.

Broader Market Concerns

Other investors share concerns that the enthusiasm surrounding AI may be pushing stock market valuations toward bubble territory. Wolf von Rotberg, an equity strategist at J Safra Sarasin Sustainable Asset Management, cautioned that US equities appeared increasingly bubbly, having rebounded significantly since April after Donald Trump initiated his trade war. He said the rebound was largely fueled by a positive narrative around AI and increased investment spending. While a bubble lacks a definitive definition, he noted parallels to previous periods of market exuberance and said current valuations are not far from the dot-com highs of the early 2000s. He added that credit markets are trading at risk spreads close to 25-year lows.

Conversely, the City consultancy Capital Economics suggested that the rally has further to go. They stated that the renewed talk of a stock market bubble in the US, with the S&P 500 approaching a record high, was not surprising. Nonetheless, they projected the index could surpass their current forecast by the end of the year and continue to gain in 2026 as AI hype persists.

The Deutsche Bank Research Institute reported a sharp decrease in web searches for “AI bubble” over the past month, according to Google Trends. They quipped that the bubble in saying there's a bubble has already burst.