Chinese Hedge Funds Warn the AI ‘Super Bubble’ Is Ready to Burst

Two prominent Chinese hedge funds, Wealspring Asset and Shanghai Banxia Investment Management Center, warned that the global AI stock boom is an unsustainable 'super bubble' poised to burst. Wealspring cited overhyped valuations and weak business models among Chinese AI infrastructure firms, while Banxia pointed to slowing revenue growth at Anthropic as a trigger. At least four other Chinese funds expressed reluctance toward AI in May, reflecting growing caution in the market.

Bloomberg -- Two of China's best-known hedge fund managers are warning that the artificial intelligence boom in global stock markets has become an unsustainable bubble. Most Read from Bloomberg Wealspring Asset, whose founder Yang Dong is well-known in China for calling the top in 2007, said global AI stocks have become a "super bubble" and that the "collapse point may not be far away," according to an investor letter seen by Bloomberg News. Shanghai Banxia Investment Management Center said "the trigger for the AI bubble to burst has already appeared," citing pressure on breakneck revenue growth at Anthropic PBC. At least four other Chinese hedge funds expressed reluctance around AI in May, according to a monthly summary of fund views compiled by CSC Financial Co. and seen by Bloomberg News. Four funds in the summary were positive, while the remaining seven didn't give a stance on AI. The investor letters offer an insight into how China's prominent hedge funds are viewing a technology that is shaking up markets around the world. AI-related stocks have boomed this year, with bellwethers such as SK Hynix Inc. and Micron Technology Inc. more than tripling in value. But the rally is suffering from violent pullbacks as investors and their counterparties become more cautious. Wealspring, which manages more than $1.4 billion of assets, wrote that many of China's AI infrastructure companies lack a long-term moat, run "quite ordinary" business models, and require constant capital spending to sustain their growth. "We truly did not anticipate that a mere boom driven by a wave of massive demand could be hyped up to such high valuations and market capitalizations," the firm told investors. "Back in the 2015 bull market, there was a term, 'brainless buying' — and right now, we are probably in a similar state again." Wealspring wrote that some of the hottest shares in China's domestic stock market were "very likely" to crash more than 80%, although it didn't pinpoint specific shares that were vulnerable to a wave of selling pressure. Banxia, which manages more than $294 million, pointed to warning signs outside of China's borders. The firm predicted that Anthropic's annualized revenue run-rate, a closely-watched metric for AI bulls, will fall short of market expectations. Large tech companies will recoil at the rising cost of tokens while Anthropic's competitors may chip away at its popularity among computer programmers, the Chinese fund said in its investor letter.