An asset management giant says the US is now in an AI bubble as capital expenditures (CapEx) massively outpace revenues.
In a new CNBC interview, Lauren Taylor Wolfe, managing partner at Impactive Capital, warns that people will be robbed of their investments when the AI bubble bursts.
“Definitively…. I think AI as a technology is transformative. It’s going to change the way that we live. It’s going to change our economy and society. And there will be some companies like the Googles, right, and Amazons that survive. But we are absolutely in an AI bubble now. It is going to burst. I don’t know when. I don’t know the order of magnitude. A lot of people are going to lose money.”
She says the imbalance between projected capital spending and real cash generation is unsustainable, predicting that tech giants will have no other choice but to use leverage to pay for financial commitments.
“Well, there are trillions of dollars that are being earmarked to be spent relative to hundreds of billions of dollars of free cash flow generated by the Mag 7. So they’re going to have to borrow to invest in all this CapEx. And we have yet to see the returns on investment on this, on this CapEx. So show me the trillions of dollars of profits that are going to be generated in the next five years. And you just can’t, the math just doesn’t work.”
Wolfe’s comments starkly differ from Rick Rieder’s view that US companies are generating unprecedented levels of cash to justify capital valuations. The BlackRock CIO noted that the free cash flow produced by tech giants allows them to invest in innovation and still return capital to shareholders at scale.
Impactive Capital is a New York-based activist investment firm with assets under management of around $2.8 billion.
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