Why Panic AI Headlines Don't Match Reality

Headlines Spark Concerns About AI Boom Sustainability

Currently, the biggest unanswered question on Wall Street is, “Is the AI boom mimicking the dot com bubble?” Recently, a few headlines that hit the Wall Street news wires likely cast doubts in bulls’ minds, including:

·       Sam Altman Podcast Exchange: Recently, Sam Altman, the CEO of OpenAI, was interviewed by OpenAI investor Brad Gerseter. After being asked how OpenAI can justify spending $1.4 trillion on AI infrastructure when the company only generates $13 billion in revenue, Altman became visibly annoyed and defensive. In a tense exchange in which Microsoft (MSFT) CEO Satya Nadella was present, Altman suggested that OpenAI was doing much more revenue than the $13 billion that was previously reported and said, “If you want to sell your (private) shares, I’ll find you a buyer.”

·       SoftBank Sells Nvidia Stake: SoftBank group, one of the largest tech funds in the world, announced this week that it is selling its massive $5.8 billion Nvidia (NVDA) position.

·       Michael Burry’s Bearish 13F: Michael Burry is best known for his windfall profit from the Global Financial Crisis short trade. Burry’s most recent 13F disclosure shows that, at the time of the filing, he is bearish on the two most prominent AI leaders: Nvidia & Palantir (PLTR).

Although the above headlines seem bearish at face value, there are three reasons that they aren’t:

AI Spending Concerns are Misinformed

In a recent CNBC interview, Advanced Micro Devices (AMD) CEO Lisa Su pushed back on concerns that technology companies are getting over their skis in terms of AI spending, saying: “In the past twelve months, all of our customers have said, demand is accelerating because now we are starting to get real productivity out of the AI use cases. We have all the largest hyperscalers in the world saying that they are investing more in CAPEX because they can see the return on the other side of it.” When asked about whether the CAPEX spending boom is a gamble, Su replied, “I don’t think that it’s a big gamble; it’s the right gamble.”

Su is worth listening to. Under Su’s leadership, AMD’s market cap has soared from $2 billion to $400 billion today. In addition to Su’s bullish CNBC comments, AMD provided outstanding guidance during its Tuesday analyst day, including:

·       Demand for AI computing infrastructure remains exceptionally high.

·       Customers are NOT reducing their investments in AI.

·       AMD projects annual revenue growth of 35% CAGR over the next 3-5 years.

·       AMD forecasts data center growth exceeding 80% CAGR.

SoftBank Nvidia Sale is Not Bearish for AI

SoftBank provided valuable commentary as to why it sold its Nvidia position. The Japanese investing giant explained that it is not bearish on Nvidia, but is instead using the proceeds of the sale to reallocate capital to other parts of the AI boom. Though AI chipmakers will still flourish, SoftBank believes that the next big wave of gains will come from AI software and the models themselves (such as OpenAI’s ChatGPT). In other words, SoftBank is not giving up on AI, but instead reallocating capital to optimize its investment in it.

Michael Burry AI Fears are Unfounded

Although Michael Burry is a legendary investor, history shows that while he delivers high returns in bear markets, he often leans bearish to a fault. For instance, in late January 2023, Burry infamously tweeted “Sell.” What followed the tweet was a year-long rampant bull market. Meanwhile, Burry is a flexible investor who often changes his mind quickly. In other words, though Burry’s 13F disclosure showed that he was short AI stocks, that could’ve already changed or can change in the near future.

Bottom Line

Despite attention-grabbing headlines, the underlying fundamentals of the AI boom remain strong. Industry leaders like AMD are reporting accelerating demand, while major investors such as SoftBank are doubling down on AI.

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This article originally published on Zacks Investment Research (zacks.com).

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