BCA Research’s chief global strategist, Peter Berezin, has warned that the market may be in the midst of an artificial intelligence bubble. In a recent note, Berezin suggests the odds have risen that investors may begin to punish AI companies for increasing capital expenditure. This, he argues, warrants caution towards AI stocks and the broader S&P 500.
Berezin estimates that hyperscalers, including Amazon, Google, Meta, Microsoft, and Oracle, are on track to hold approximately $US2 trillion in AI-related assets on their balance sheets by 2030. He projects that these companies’ depreciation expenses in 2030 could exceed their combined earnings today. Assuming a five-year lifespan for AI assets, the annual depreciation expense could reach around $US400 billion.
To gauge the sustainability of the AI boom, Berezin advises investors to monitor AI adoption rates and GPU rental rates. While adoption rates show signs of peaking, GPU rental rates have been trending lower. However, investor sentiment towards AI capital expenditure remains a key indicator. Berezin points to Meta Platforms and Oracle as examples where investors reacted negatively to announcements of increased capital expenditure.
BCA Research is an independent investment research firm providing global macro strategy and investment advice. They offer research services to institutional investors, wealth managers, and asset allocators.
