AI Capex Boom Risks 'Massive Capital Destruction' in the US, Warns Veteran Market Strategist: 'You Could Get Some News Item That Suddenly…'
Chris Wood, Global Head of Equity Strategy at Jefferies, raised concerns over the sustainability of the current trend in AI investments, warning of a potential implosion due to a shift towards debt financing and the risk of a funding break. Wood, in an interview with CNBC-TV18 on Thursday, expressed apprehension about the “enormous” amounts being invested in AI by American hyperscalers, with an estimated trillion dollars expected next year. According to him, these investments may not yield returns that justify the capital deployed. “My base case there’ll be massive loss of capital destruction in the U.S.,” he said. However, as long as the market doesn’t question the capex “aggressively,” semiconductor stocks will continue to profit, he said. The Equity Head also pointed out a shift in the funding model. Initially, these investments were primarily cash-funded. Now, three and a half years into the trend, debt is increasingly financing these investments. Wood cautioned that a market decision to withdraw credit could trigger a swift end to this trend. While there is no clear timeline for this scenario, he emphasized the importance of monitoring the situation closely. “You could get som
Chris Wood, Global Head of Equity Strategy at Jefferies, raised concerns over the sustainability of the current trend in AI investments, warning of a potential implosion due to a shift towards debt financing and the risk of a funding break. Wood, in an interview with CNBC-TV18 on Thursday, expressed apprehension about the “enormous” amounts being invested in AI by American hyperscalers, with an estimated trillion dollars expected next year. According to him, these investments may not yield returns that justify the capital deployed. ,” he said.
However, as long as the market doesn’t question the capex “aggressively,” semiconductor stocks will continue to profit, he said. The Equity Head also pointed out a shift in the funding model. Initially, these investments were primarily cash-funded. Now, three and a half years into the trend, debt is increasingly financing these investments.
Wood cautioned that a market decision to withdraw credit could trigger a swift end to this trend. While there is no clear timeline for this scenario, he emphasized the importance of monitoring the situation closely. “You could get some news item that suddenly makes people question this whole cycle,” he cautioned. The Jeffries Equity Head stated that the key macroeconomic issue for stock markets right now is the outlook for AI capital expenditure.
S. 1% of GDP in 2027. That means today’s AI capex race could become almost three times larger relative to the economy. 2 trillion the following year.
S. com Inc. (NASDAQ: AMZN ), Alphabet Inc. , Meta Platforms Inc.
(NASDAQ: META ), Oracle Corp. (NYSE: ORCL ), and Space Exploration Technologies Corp. 17 trillion over the following year. Despite calls for an AI slowdown, sustained infrastructure spending by big tech could lead to its continued growth, according to Hendi Susanto, a portfolio manager at Gabelli Funds.
Even if leading AI labs such as Anthropic and OpenAI decelerate their progress, "second- and third-tier players" will seize the chance to level up, maintaining high demand for AI infrastructure, according to the tech fund manager. Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published editors. Read Also: Intel Stock Could Nearly Double to $200 in 2 Years, Analyst Says — Potential Apple, Tesla, and AI Chip Deals Could Fuel the Rally Image via Shutterstock