Big Tech's huge AI spend creates 'a little bit of a prisoner's dilemma,' says a hedge fund exec

"The race to dominate artificial intelligence has turned into an expensive competition that traps Big Tech companies into "a little bit of a prisoner's dilemma," a top hedge-fund executive said. "You have to invest in it because your peers are investing in it, and so if you're left behind, you're not going to have the stronger competitive position to it," said Tony Yoseloff, the chief investment officer at hedge fund Davidson Kempner Capital Management, which manages about $37 billion."

"He said that spending dynamic doesn't just affect Silicon Valley. Because a small number of mega-cap tech stocks dominate the US equity market, their behavior now influences nearly every investor. Yoseloff isn't dismissing AI as hype. Instead, he frames it within the long pattern of technological change. He pointed out that it took about 10 years from when personal computers became popularized in the United States in the 1980s to see productivity gains in the workplace."

"And it took about five or six years from the mass marketing of the internet to see similar gains. If history repeats, the economic benefits of today's AI boom could still be years away. But he said the markets are acting as if the payoff is imminent. "So the way I like to think about it is: Is there going to be an AI wobble at some point? Are investors going to be concerned about how those CapEx dollars are being invested?" he said."

The AI race has become an expensive competition that traps Big Tech into a prisoner's dilemma, forcing companies to invest because peers are investing. A small number of mega-cap tech stocks dominate the US equity market, causing their spending behavior to influence nearly every investor. Historical technology adoption shows productivity gains followed the spread of personal computers by about ten years and the internet by five to six years. If history repeats, AI benefits could be years away, yet markets are pricing in imminent payoffs, creating risk of an 'AI wobble' as investors scrutinize CapEx. Enormous AI spending is being driven by financially healthy firms that can reinvest cash flow, while public markets may be impatient.

Read at Business Insider