Raul Pal says AI could be ‘the biggest bubble of all time’: Morning Brief

Vera PhelpsFebruary 16, 2023

This article first appeared in the Morning Brief. Get your morning roundup straight to your inbox Monday through Friday until 6:30 AM ET. Subscribe

Thursday, February 16, 2023

Today’s newsletter from Jared Bleecre, the reporter focused on Yahoo Finance markets. Follow him on Twitter @SPYJared. Read this and other market news on the go with Yahoo Financial App.

The AI genie has burst out of the bottle at a speed unmatched in modern human history, and investors are starting to take notice. On Wednesday, C3.ai (AI) and SoundHound AI (SOUN) added to their 2023 revenues — each up about 120% this year.

Despite the dominance of these AI themed titles, the industry is still relatively small and many investors are wondering how to invest. Already one seasoned macro trader is looking far beyond the hype, warning that investment in AI could become “the biggest bubble of all time.”

Raul Pal, CEO and founder of Real Vision Group, recently spoke with Yahoo Finance Uncut about the huge rise in artificial intelligence as well as the side effects of mainstream adoption. He believes that the number of AI applications will increase dramatically, and we are not yet ready to deal with the consequences of this exponential growth.

Pal argues that hand in hand with the history of AI growth will lead to a global deflationary shock – one of the largest the world has ever seen.

“I think it could be more [by] an order of magnitude more than China, which joined the [World Trade Organization]. I can’t express how powerful what is happening,” he said, referring to the 2001 WTO decision that paved the way for China to become a manufacturing and trading giant, ushering in an era of cheap imports for Americans.

Similarly, experts predict that AI will replace many workers while lowering the cost of goods and services to consumers.

But despite the lofty views of industry insiders and investors looking for the next big breakthrough, the technology is still relatively young and the scope for investment at scale is limited. Guardforce AI (GFAI) and BigBear.ai Holdings (BBAI) are pure gaming titles that draw attention. But even the largest of them, the aforementioned enterprise software leader C3.ai, has a market capitalization of just $2.5 billion.

Attention-grabbing AI-themed stocks and funds (non-exhaustive)

In the fund universe, several thematic ETFs include AI, but mostly in addition to the broader topic of robotics. The only exception is the WisdomTree AI and Innovation Fund (WTAI). (However, a cleverly named ETF with the ticker CHAT recently applied for US registration.)

But investors don’t have to chase illiquid small-cap stocks to invest in AI.

“[F]or to the layman, right now the easiest way is in two ways [to invest in AI] are Microsoft and Google,” says Pal, adding that both companies are changing all of their business models to use AI.

Microsoft (MSFT) may take precedence over ChatGPT. But behind the scenes, Alphabet-owned Google (GOOGL, GOOG) is investing in other complementary technologies that should be big investment opportunities going forward, Pal says.

“[D]don’t forget – Google has robotics. Google has EV. Google has autopilot… [T]they have quantum computing – all in their Google X labs that we don’t even know about. It’s all behind the scenes.”

As users adopt these new technologies, companies offering them on a large scale must benefit from network effects, a self-reinforcing phenomenon that increases their network activity exponentially. Semiconductors also fall into this category, Pal says. Companies like Nvidia (NVDA) are playing a key role in AI data processing, and they are likely to benefit from the technology becoming more mainstream.

As technology permeates our daily lives and mission-critical systems, there will be more high-profile AI failures – some funny, some frightening. But the deck is stacked in favor of exponential growth.

While it may seem premature to worry about a bubble in any asset, with investors still reeling from last year’s blow, Pal focused on some of the short-term implications. “If there is any reason for big tech stocks to really go up one more leg, it is [AI],” He says.

View the full 50 minute interview with Raul Pal on Yahoo Finance Uncut higher.

Economy

8:30 AM ET: Final Demand PPIon a monthly basis, January (expect 0.4%, -0.5% in the previous month)
8:30 AM ET: PPI excluding food and energyon a monthly basis, January (expected 0.3%, 0.1% in the previous month)
8:30 AM ET: Final Demand PPIyear on year, January (expected 5.4%, 6.2% in the previous month)
8:30 AM ET: PPI excluding food and energyyear on year, January (expected 4.9%, 5.5% previous month)
8:30 AM ET: Construction beginsJanuary (expected 1.353 million, 1.382 in the previous month)
8:30 AM ET: Building PermitsJanuary (Expected 1.350M, 1.330M the previous month, revised to 1.337M)
8:30 AM ET: Construction beginson a monthly basis, January (expect -2.1%, -1.4% in the previous month)
8:30 AM ET: Building Permitson a monthly basis, January (1.0% expected, -1.62% in the previous month, revised to -1.0%)
8:30 AM ET: Initial Jobless Claimsweek ending February 11 (expected 200,000, 196,000 the previous week)
8:30 AM ET: Continuing claimsweek of February 4 (expected 1.689 million, 1.688 million the previous week)
8:30 AM ET: Philadelphia Fed Business Outlook IndexFebruary (expectation -6.9, -8.9 previous month)
8:30 AM ET: New York Federal Reserve Business ActivityFebruary (-21.4 previous month, revised to -13.7)

Income

Blowjob Restaurants (BZhRI), Bloomin Brands (BLMN), Constellation Energy (KEG), ConEdison (ED) Crocs (CROX), datadog (DDOG), DoorDash (RUSH UP), DraftKings (DKNG), Dropbox (DBK), Hasbro (IT HAS), Hyatt Hotels (HOUR), Paramount Global (PAIR), shake the shack (SHAK), We are working (WE)