Doubts over AI boom taking root among some experts

Sceptics say commercial hopes for tech may be overblown, fearing inflating stock bubble

Over three decades on Wall Street, Mr Jim Covello has learnt how painful it can be to bet against an inflating tech stock bubble. The market has a way of minting riches, month month after month, even after it is clear the latest breakthroughs are not playing out quite as expected.

It happened with dot.​com companies in the late 1990s and, more recently, with cryptocurrencies. And Mr Covello, the head of equity research at Goldman Sachs, says it will likely happen with artificial intelligence (AI), too, making it dangerous, if not outright foolish, to start wagering against the likes of Nvidia.

And yet, he has no doubt that the reckoning is coming. It might not be in 2024 or even the year after, for that matter, but at some point, he says, it is happening.

As he sees it, the hundreds of billions of dollars that companies are ploughing into AI will not set off the next economic revolution - or even rival the benefits of the smartphone and the internet. And when that becomes clear, all the stocks that have surged on the back of its promise will come sliding down, too.

"Most technology transitions in history, particularly the ones that have been transformational, have seen us replace very expensive solutions with very cheap solutions," said Mr Covello. "Potentially replacing jobs with tremendously costly technology is basically the polar opposite."

Mr Covello is emerging as a leader of a small but growing cohort of market watchers who are casting doubt on a crucial tenet of the rally that has added nearly US$16 trillion (S$21.5 trillion) to the S&P 500 since late 2022: the idea that the dazzling power of large language models will usher in the next great stage of capitalism, one where corporate profits will boom as more and more work is handed over to intelligent machines, boosting efficiencies and accelerating growth.

There are plenty of believers.