Are AI Bubble Concerns Warranted or Overblown?
Episode publishedPodcast: Goldman Sachs ExchangesGoldman Sachs Exchanges
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Is there an AI bubble? We've all heard the bull case for AI, that we're in the early innings of a technological revolution that will change the world, and the companies leading this revolution will generate tremendous returns for their investors. But after years of heavy spending and rising stock valuations, we're starting to hear a lot more skepticism. So are there signs of a bubble? And if we are in a bubble, what does it mean for investors? I'm Alison Nathan, and this is Goldman Sachs Exchanges. Each month, I speak with investors, policymakers and academics about the most pressing market mo
On the infrastructure layer, the amount of capital and the amount of spend has surprised to the upside. That level of spend short term is mostly tied to the fact that demand for these services, the compute need generated by you querying GPT is outstripping the available capacity. So infrastructure has surprised to the upside on the need for capital to meet the demand for services. The platform layer arguably is the handful of companies that are transitioning from just running foundational models to either building API solutions or applications on top of the foundational model. And there's only
Okay. Kash, I do wanna get your take.
The infrastructure build out has gone on a lot longer than anybody expected. But at the same time, when I look at my coverage area, how this activity at the infrastructure layer is percolating up to the platform layer is starting to become more discernible. The platform layer is in a much better position today than it was a year ago, two years ago. The disappointment has been at the application layer. To Eric's point, a lot of consumer applications, they are exemplifying the value of AI, whether it's chat GPT or cloud application at the consumer level. But at the enterprise level, end user lev
But ultimately, Eric, there is so much CapEx going in so much more than we even thought when there was amazingly high numbers last year, the return potential. Has that grown too?
So I'll make a couple of points. The rise in spending in aggregate is a very large number, and it has resulted in a number of investors really asking the ROI question. That question is only going to build in scale, not abate in scale. And I really don't think there's any incentive for anyone to stop playing offense today. NVIDIA recently put out a number of 3 to $4,000,000,000,000 between now and the end of the decade. I think most investors we talk to would struggle to justify the return profile on 3 to 4,000,000,000,000 of cumulative spend unless AI is the main driving factor in an enormous
Obviously, we're having this conversation because the concerns that there is a bubble forming in the markets when you see how mega cap tech has performed, the valuations where they are today. Do you think concerns that we are now in bubble territory are there, and what are you watching to assess that?
I'm not trying to be flip about this question. There's been more talk of a bubble in a continuous nature for three years. Two other bubbles I lived through, there wasn't this much talk of the bubble while we were in the bubble. So, look, do I see signs that point me back to the late nineties or the o seven time period? Sure. Private market valuations are well ahead of public market valuations. Public market valuations are above historical norms, but they're also below the peak of public market valuations that you saw in '99 and 2000. Capital market activity is still well below the levels that
Nash, do you have any thoughts about bubble concerns and signs that we may or may n
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