The AI Bubble Will Pop from Equity Supply Says This $80 Billion Asset Manager | Ben Inker | GMO
Episode publishedPodcast: Monetary Matters with Jack Far...Monetary Matters with Jack Farley
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In general, the market does about 4% worse per percent of market cap that comes in in an IPO in a given year. So if we are seeing 6% coming in, that's 24% worse than normal. If we're all short of compute, then sure, I'm going to pay for a five year old GPU that is less energy efficient. But man, if now the world is suddenly awash in compute, we will have massive defaults on the credit side. We will see companies on the equity side go bust. We will see a problem for the hyperscalers where their return on investment turned out to be lousy. And is that a minus 18% in the market? No. Right? That i
This episode is brought to you by Sarmaya Partners, who manages a return to tangibles ETF LENS, ticker l e n s. The Sarmaya thematic ETF built for a return to tangibles. Learn more at sarmayaetf.com and see the show notes for disclosures. Let's get into it. Hello, and welcome to other people's money. I am joined today by Ben Inker, co head of asset allocation at GMO, which manages over $80,000,000,000 today. Ben, thank you for joining me today.
Thanks so much for having me, Max.
I wanna start out with the big call that you recently made in your q three quarterly letter, specifically that you think that equity supply is the catalyst that will bring down the AI bubble and that you expect that catalyst to play out in the next twelve to eighteen months. What is it that you're seeing, one, that has you saying AI is a bubble? And two, talk to me about equity supply that we've already seen and why you're expecting more of it to weigh on the market?
Well, there's a lot there. We'll start with the relatively quick version and we can get into as much detail as you want. Why do we think AI is a bubble? I'd say kind of at the highest level, it is because it is a transformational technological change. Transformational technological changes normally create bubbles. We've seen it time and time again, whether it was canals or railroads or autos or electrification or the internet, these events, everybody can tell, oh my God, this is gonna change the world. And so they say, well, I really wanna be a part of that. And the difficulty with these trans
Well, that is exactly what we're seeing. Right? Whether it's, you know, this week, Anthropic has the best model, OpenAI has the best model, and then also the open source models that have come out from other labs from other countries, It's clear that people are switching. And in many ways, people are switching even between queries, between different use cases, their entire businesses where their job is to help you optimize this switching at a task by task level.
Exactly. And that needs to happen, right? If we are going to get really broad use of artificial intelligence, it needs to be cheap. And the problem with it being cheap is it is hard for something to be cheap and be wonderfully profitable. So, we think this is likely to prove to have been a bubble. Now, the question of why do we think that supply is going to be the driver of that? As we look at the market in the last few decades, what we see is more and more evidence that the market is becoming more price inelastic when it comes to supply. So, if you think about it, if you own shares of a stock
Now I wanna step in because this idea that at the IPO, a small amount of the float is what's gonna come out is not new. What was new with the SpaceX IPO was the staggering of the unlocks. Traditionally, it's just a one hundred and eighty day. Everybody is locked up until one hundred and eighty days, and then you get to sell. I mean, did the crazy tranching of the unlock schedule
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