Yardeni Research analysts have expressed concerns about the current rally in AI technology, identifying two major risks that could potentially derail the sector’s explosive growth.
Although AI promises revolutionary changes across industries, there are signs of “AI inflation” that call for caution.
First, the unprecedented influx of funds into AI startups is a wake-up call. Yardeni Research points out that “investors have poured $330 billion into 26,000 AI startups over the past three years,” significantly more than in previous years.
While this influx of capital has spurred innovation, it has also led to a crowded market, with many companies struggling to turn a profit, the firm said. For example, Stability AI has faced financial difficulties, leading to layoffs and the departure of its CEO.
Similarly, they add that Inflection AI, despite raising over $1.5 billion in funding, has seen its management leave for Microsoft (NASDAQ:). The fear is that “if AI startups run out of cash, their vendors could see their AI-related revenues dry up quickly.”
Second, analysts caution against statements from AI industry leaders that hint at a potential bubble. Nvidia (NASDAQ:) CEO Jensen Huang has described its Blackwell architecture platform as perhaps “the most successful product in the history of computing.”
However, analysts caution that they “don’t believe the semiconductor cycle is dead” and that AI efficiencies may not entirely circumvent the industry’s inherent volatility.
Yardeni Research acknowledges the potential of AI but notes that “doubling the size of the global economy in a decade is quite a claim.”
In summary, Yardeni Research believes that while AI holds great promise, these two risks – excessive capital inflows and inflated expectations – underscore the need for investors to remain cautious in the current AI technology recovery environment.
