Fears about an AI bubble have reached the point where financial advisors are now sending out Nvidia-branded bubble guns.
Driving the news: Michael Burry, the investor famously portrayed by Christian Bale in The Big Short, has made his next big bet against Palantir and Nvidia, two of the AI industry’s darlings. Filings show that Burry’s Scion Asset Management holds over US$1 billion worth of put options — which gain value if share prices go down — on the two companies.
- Palantir, which reported better-than-expected earnings on Monday, still saw its share price plummet 10.4% by market close on Wednesday.
- While Palantir’s stock is up a staggering 267% from a year ago, it was trading at about 240 times its earnings on Tuesday (the average being around 30 times for the S&P 500).
Why it matters: More investors have grown wary that the AI market is being fuelled more by FOMO than actual value. With trillions of dollars being spent to build and run AI systems, doubt is creeping in that profits will ever catch up to the catastrophically high costs.
- OpenAI is reportedly making $13 billion in annual revenue (not bad), but it’s also set to burn $115 billion through 2029 and commit over $1 trillion to computing power.
- To justify the current industrywide investments, AI companies would need to bring $2 trillion in annual revenue by 2030 — a 100-fold increase from current AI revenues.
Big picture: So much of the broader stock market rally has been driven by these high-flying tech valuations. As AI optimism cools, some Wall Street CEOs are expecting a wider market correction of up to 20%.—LA