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Macroscope
The more ‘DeepSeek moments’ there are in China, the likelier markets are to doubt the AI-related revenues and financing of US hyperscalers
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Nicholas Spiro is a partner at Lauressa Advisory, a specialist London-based real estate and macroeconomic advisory firm.
These are testing times for the
artificial intelligence(AI) trade that has been driving global equity markets. No other investment theme comes close to rivalling the importance of the AI boom as the world’s largest technology companies spend vast sums of money on data centres, memory chips and computing power.At the same time, no other risk divides opinion more than the threat of a dramatic and sustained
sell-off in AI-related stocks. According to the latest Bank of America global fund manager survey on July 14, 43 per cent of respondents believed AI shares were in a bubble, while 48 per cent said they were not.Uncertainty over the future of the AI boom is exacerbated by frequent shifts in the narrative around the technology. Last year, monetisation was the main concern as investors fretted about the mismatch between
the colossal spendingon the AI buildout and the relatively meagre revenues from AI companies and services. Earlier this year, fears shifted to displacement amid concerns about AI tools upending established business models, particularly inthe software industry.Sentiment in stock markets continues to oscillate as investors struggle to decide whether AI will
fall short of expectationsor prove more disruptive than many think. What is not in dispute, however, is the dominance of the tech sector in benchmark indices.Gone are the days when the tech-heavy US equity market was the main source of concern about concentration risk. In South Korea, two leading chipmakers – SK Hynix and Samsung Electronics – account for a staggering 52 per cent of the Kospi index. Risks are amplified by the launch of
single-stock leveraged exchange traded fundsthat track the two firms.When renewed fears about the AI spending spree caused the Kospi to plunge nearly 40 per cent between June 22 and July 30,
burning retail investorsand exposing the wild swings in the market, South Korea’s financial regulator stepped in to rebut criticism that the Kospi was uninvestable. What is clear is that the combination of AI exuberance, excessive leverage and poor regulation carries big risks. South Korea is an extreme example, but it speaks to wider vulnerabilities in equity markets.Advertisement
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