A senior Deutsche Bank strategist says growing concerns over the runaway AI trade are prompting investors to seek safety elsewhere.
In a new interview, Adrian Cox, thematic strategist at Deutsche Bank Research Institute, says the AI trade is beginning to show “red lights,” a sign the market may be underestimating the risks tied to record capital spending and inflated valuations.
“The red lights, I would say that it is reasonable to be concerned about the amount of CapEx that’s going on, and in particular, whether it’s going to be possible to recoup the expenditure within the life of the chips.”
He adds that while companies are amortizing those investments, private market valuations are becoming stretched.
“Obviously, you see OpenAI going up there to $500 billion.”
But Cox says the sheer demand for AI and the profitability of cloud providers continue to support spending for now.
“There is enormous demand out there, and the earnings that the large cloud providers are getting from providing AI are still increasing very, very fast. These are kind of healthy companies funding their investments out of free cash flow.”
He contrasts the current AI cycle with the dot-com bubble two decades ago.
“This is not mom-and-pop, you know, back in the dot-com bubble when they were investing in new IPO companies which weren’t making any money. In this case, the really big investments are on the private side by investors who are experienced and really should know better if there’s a problem out there.”
Cox also notes that the surge in gold prices reflects quiet hedging behavior among investors wary of an AI-driven correction.
“You were just saying earlier that gold prices are up there near an all-time high. Have a look at what they were doing at the time of the dot-com bubble, where they were pretty much at rock bottom. That suggests that there is some concern out there, that there is some awareness that this bubble, if it is a bubble, may burst, and people want to have a quick safe haven to run to if that happens to be the case.”
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