A leading economist, Ed Yardeni, on Tuesday warned of a bubble in artificial intelligence stocks. Yardeni said AI "rock stars" such as Nvidia's chief executive and OpenAI founder Sam Altman were overhyping the technology, helping boost AI stocks to new highs.
Amid the buzz over generative AI, Nvidia stock jumped 149% in 2024. The chipmaker surged 239% last year. Nvidia stock is among AI stocks to watch.
"While we love the productivity-enhancing possibilities that artificial intelligence offers, the AI phenomenon has many of the hallmarks of an inflating bubble," said Yardeni in a note to clients. "There are big bucks chasing the AI dream. New kings of industry have been crowned. And the hyperbole is flowing."
Yardeni isn't alone. Goldman Sachs head of global equity research, Jim Covello, last week warned in a report that investor sentiment on AI stocks could turn negative and that AI's economic benefits are exaggerated.
AI Stocks: Too Much Kool-Aid?
Meanwhile, Yardeni focused on Nvidia CEO Jensen Huang and OpenAI's Altman. "Like every hip new tech industry, the AI world has its rock stars, including Nvidia's Jensen Huang, ChatGPT's Sam Altman, and Tesla's Elon Musk," Yardeni said. "Some sound like they've drunk too much AI Kool-Aid."
Nvidia expects to start first shipments of its new "Blackwell" AI chip for data centers this quarter. Nvidia's AI chip road map includes Ruben and Vera launches in 2026.
Yardeni noted that Huang said the Blackwell chip architecture platform may be the "most successful product in the history of the computer."
"We have no doubt that Blackwell will be extremely successful," Yardeni said, adding "we don't believe the semiconductor cycle is dead.
However, "When semiconductor industry demand is strong, customers scramble to get their hands on chips," Yardeni said. "They often over-order in anticipation of their entire order not being fulfilled. Once customers receive the chips they need, orders drop abruptly and manufacturers and wholesalers find themselves with excess inventory. AI may help manufacturers operate more efficiently, but it won't change human nature."
Also, Yardeni cautions that many well-funded AI startups have yet to turn a profit.
Big Productivity Increase
Meanwhile, OpenAI has told employees it's now on an annual revenue run-rate of $3.4 billion. That's up from $2 billion in January. OpenAI has been making acquisitions, such as Rockset, targeting the enterprise market.
Microsoft is the biggest investor in OpenAI. Federal regulators are reportedly looking into Microsoft's investments in OpenAI and other AI startups.
"OpenAI CEO Sam Altman at the Aspen Institute Ideas Festival compared the rise of AI to the discovery of agriculture and the invention of industrial-era machines," said Yardeni.
"He claimed that AI will dramatically increase productivity and help global GDP grow 7% annually to double within 10 years. While we concur with Altman that AI will enhance productivity and boost economic growth, doubling the size of the world economy in a decade is quite a claim."
Cloud computing giants Amazon.com, Microsoft and Alphabet's Google are spending heavily on AI stocks to expand data center capacity for artificial intelligence workloads.
On the stock market today, Nvidia stock fell 1.3% to close at 122.67.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
