A senior JPMorgan strategist says investors should watch one key metric to determine whether the AI boom is entering dangerous territory.
In a new CNBC interview, Monica DiCenso, head of global investment opportunities at JPMorgan Private Bank, says her team is closely monitoring corporate balance sheets as AI spending accelerates across the market.
DiCenso says, for now, she doesn’t think that AI is in bubble territory as companies use free cash flows to fund projects. But she notes her stance will change once tech giants begin to take on debt to support the AI buildout.
“So when you look at what’s being spent, we’re watching very closely: what is the free cash flow these companies are generating? Are they levering to do this? Not yet. If that starts to happen, I think you should become very concerned about a bubble.”
She says the bullish case for AI is built on the so-called J-curve, a pattern where AI performance dips before a larger, long-term increase. The dip can be attributed to factors such as process redesign and staff retraining to deal with initial inefficiencies before widespread adoption.
Says DiCenso,
“If you believe the J-curve, which is the argument to be bullish AI now, you have to assume numbers are too low.”
Based on her experience of AI use at JPMorgan, DiCenso says the technology has changed the way the bank’s employees deal with daily tasks.
“You see all the ways AI has changed the way we do work day to day, the way we become more efficient, the way we underwrite credit, things like that. It is going to change the way we all live and work over the next five to 10 years.”
As for her recommended approach to deal with AI bubble calls, DiCenso says investors should diversify and look for hedges in other asset classes.
“This is why you do need a barbell approach. Whether it’s looking at boring stuff like fixed income again, you need just some balance to some of the exuberance that you’re seeing in these sectors. Gold, things like that.”
Disclaimer: Opinions expressed at CapitalAI Daily are not investment advice. Investors should do their own due diligence before making any decisions involving securities, cryptocurrencies, or digital assets. Your transfers and trades are at your own risk, and any losses you may incur are your responsibility. CapitalAI Daily does not recommend the buying or selling of any assets, nor is CapitalAI Daily an investment advisor. See our Editorial Standards and Terms of Use.