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AI FRENZY FACES 'AIR POCKET' RISKS: WHERE TO GET SHELTER
Is artificial intelligence the next big bubble? AllianceBernstein's Inigo Fraser Jenkins weighs in on the debate dominating markets - and his answer is nuanced.
The firm highlights three thorny issues: how much AI can boost productivity, whether it destroys jobs and whether the extraordinary capital pouring into AI is overdone.
AB estimates data centre construction will hit $400 billion in 2025, while hyperscalers are forecast to spend over $1 trillion by 2027. OpenAI alone has committed to 30GW of data centre capacity from partners such as AMD, Broadcom, NVIDIA and Oracle at a cost of more than $1.4 trillion.
To pay for this, revenue growth must be unprecedented: OpenAI projects $100 billion by 2028 and $200 billion by 2030 – a pace no company has ever achieved, he notes.
Fraser Jenkins, Co-Head Institutional Solutions at AB, notes how the "sheer casualness" with which talk of an "AI bubble" comes up in client conversations contrasts sharply with evidence of capital still flooding in.
The concern isn't valuations per se, he says, but "air pocket" risks, "where investors lack information about the revenue trajectory from AI on a timescale significantly shorter than the depreciation cycle".
Add to that a deterioration in funding quality and volatility risks look underpriced.
"The consequence is that we are not bearish, but we do think there is complacency about volatility and that risks of a drawdown are elevated," he warns.
As a shelter, Fraser Jenkins recommends defensive trades: global healthcare, low-volatility strategies and EAFE income.
(Danilo Masoni)
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