Professional investors are increasingly concerned about a potential AI bubble but their worries are focused more on software firms, new global research with institutional investors and wealth managers managing assets of USD513 billion from leading fund manager Robocap shows.
The study with senior executives at insurance asset managers, pension funds, family offices and wealth managers found nearly one in three (30 per cent) are very concerned about a possible AI investment bubble with 70 per cent quite concerned.
But the study by Robocap, the leading investor in robotics, automation and AI, found they are nearly three times more worried about a bubble in AI software than in hardware such as data centres.
More than four out of five (84 per cent) say there is a potential investment bubble around software such as frontier models compared with 29 per cent saying the same about data centres.
Around two-thirds (66 per cent) of the professional investors based in the UK, US, UAE, Saudi Arabia, Singapore, Hong Kong, Germany and Switzerland believe that the debate about whether today’s AI stock prices are a bubble or a bargain in five years’ time will depend on the sector.
Just a fifth (20 per cent) believe that in five years’ time today’s AI prices will be seen as a bubble while 14 per cent believe they will be seen as a bargain.
Almost all (99 per cent) believe companies are currently spending too much on AI infrastructure which has been a dominant theme in the record performance of US tech stocks.
However almost all (99 per cent) believe the main US hyperscalers will increase or maintain spending on AI data centres next year with 34 per cent predicting an increase and 65 per cent forecasting spending will be maintained at current levels. Just 1 per cent predict reduced spending.
Jonathan Cohen, Founder and CIO at Robocap, says: “The AI bubble debate has been running for a long time and will continue to do so as the sector continues to outperform.
“Institutional investors and wealth managers are clearly concerned about the risk of an AI bubble but the research shows the debate is becoming more nuanced with professional investors discriminating between different types of AI firms and concerns focusing more on software than hardware.
“The bubble or bargain debate clearly has a long way to run with investors increasingly looking past the generalised AI hype to look for stocks which will genuinely reap the benefits of the AI revolution.”
The Robocap UCITS Fund, which is a thematic equity fund focusing on pure-play robotics, automation and AI listed stocks globally, was launched in January 2016 and is managed by a London based specialist team. It has delivered compound annualised net returns (CAGR) of 16.44 per cent and a net return of 387.98 per cent since its inception.
