TLDR
- Alphabet CEO Sundar Pichai said no company would be “immune” if the artificial intelligence investment boom turns into a bubble
- Big tech companies now spend 95% of operating cash flows on capital expenditures, buybacks, and dividends, up from 80% in 2019
- A Bank of America survey found that 20% of fund managers believe companies are overinvesting, driven by AI spending concerns
- Alphabet stock rose 1.1% on Tuesday despite the warning, helped by Warren Buffett’s Berkshire Hathaway buying shares in the third quarter
- Google announced plans to invest 5 billion pounds over two years in UK AI infrastructure and will begin training AI models in Britain
Alphabet CEO Sundar Pichai issued a warning about artificial intelligence investment during an interview with the BBC released on Tuesday. He said no company would be unscathed if the current AI boom collapses into a bubble.
Pichai acknowledged “elements of irrationality” in the current market. He compared the situation to moments when the industry “overshoots” during investment cycles.
The warning comes as big tech companies pour record amounts of money into AI development. Large technology firms including Google, Amazon, Meta Platforms, and Microsoft now use around 95% of their operating cash flows on capital expenditures, buybacks, and dividends. This figure stood at just 80% in 2019, according to Goldman Sachs data.
When asked how hard Alphabet would be hit if an AI bubble bursts, Pichai was direct. “I think no company is going to be immune, including us,” he said.
Despite the cautionary tone, Alphabet shares rose 1.1% to $288.11 in early trading on Tuesday. The gain came while the broader S&P 500 index fell 0.5%.
The stock received a boost from news that Warren Buffett’s Berkshire Hathaway purchased Alphabet shares during the third quarter. This vote of confidence from one of the world’s most respected investors added to a 3.1% gain from the previous trading session.
Concerns about AI overinvestment are spreading across Wall Street. Bank of America’s November global fund manager survey revealed that for the first time since August 2005, a majority of investors believe companies are overinvesting.
The survey found a net 20% of fund managers think spending has gone too far. Bank of America attributed this jump to concerns about the size and financing of AI capital expenditure growth.
Growing Skepticism About AI Economics
Recent analyst downgrades reflect mounting skepticism about AI returns. Rothschild & Co. Redburn analysts recently downgraded both Microsoft and Amazon.
They warned that the economics of generative AI weren’t as profitable as many had assumed. The downgrades signal a shift in how some investors view AI spending.
Pichai’s comments don’t suggest Alphabet plans to slow its AI investments. He compared artificial intelligence to the invention of the internet in terms of potential impact.
The CEO called for increased investment in energy infrastructure to support AI technology. He told the BBC that AI’s energy needs are “immense.”
Alphabet announced it would invest 5 billion pounds over two years in UK AI infrastructure and research. The investment includes plans for a new data center and funding for DeepMind, its London-based AI lab.
UK AI Expansion Plans
Pichai revealed that Google would begin training AI models in Britain. The move supports Prime Minister Keir Starmer’s goal of making the UK the world’s third AI “superpower” after the United States and China.
The company’s net-zero environmental targets will face delays as it scales up computing power. Pichai acknowledged this trade-off in the BBC interview conducted at Google’s California headquarters.
Speculation about a new Google AI model release is building. Prediction market Polymarket puts the chances of a Gemini 3 model launch this week at 94%.
Pichai responded to a social media post about the betting odds with thinking emojis on Friday. Alphabet shares have surged about 46% this year as investors bet on its ability to compete with ChatGPT-maker OpenAI.
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