Analyst warns AI stocks show signs of speculative bubble
Veteran commentator Andrew Wong argues AI stocks display bubble characteristics due to negative cash flow, uncontrolled development risks, unsustainable funding and power constraints. He notes recent sharp declines may signal the bubble is bursting.
A veteran market commentator has warned that artificial-intelligence-related stocks are exhibiting significant signs of a speculative bubble, citing deteriorating free cash flow, uncontrolled development risks, unsustainable funding and power supply constraints.
Writing in The Standard, Andrew Wong said that with the exception of manufacturers involved in AI chips and memory, the vast majority of AI-related companies including SpaceX and Alphabet have reported negative free cash flow in their latest financial results. He said the enormous investment required to advance AI development is putting increasing pressure on the financial positions of many companies in the sector.
Wong highlighted concerns over the potentially uncontrollable development of AI, noting Jacob Coxon's warning in September that AI could potentially lead to human extinction before 2030. He also pointed to reports that numerous hackers have exploited AI to launch cyberattacks affecting institutions and customers across the globe. Even without reaching artificial general intelligence, he argued, AI can already become a powerful weapon capable of causing serious harm when placed in the hands of malicious actors.
On funding, Wong questioned whether financial markets can continue providing unlimited capital to AI-related companies. Over the past two years, he said, AI companies have absorbed trillions of US dollars in funding from global financial markets, becoming a contributing factor behind rising global bond yields. Given the scale of funding already committed, he argued that the assumption that markets can continue financing AI development at the current pace deserves serious scrutiny.
Wong also flagged power supply constraints as a factor overlooked by many financial market participants. He noted that in August, Elon Musk and others highlighted a potential mismatch between computing capacity and available power supply. It was suggested that approximately 15 gigawatts of AI computing capacity in equipment manufactured in 2027 could remain unusable that year due to power constraints. If newly constructed data centres cannot access adequate electricity, Wong said, AI companies will have little choice but to slow down their investment plans, forcing investors to reassess valuations.
Taking these four factors together, Wong said he remains firmly convinced that AI-related stocks are exhibiting characteristics of a significant speculative bubble. He suggested that the sharp declines across AI-related stocks last week could well be an indication that this bubble has already begun to burst.