AI's transformative potential is not equal to return on investment! Plato Asset Management says the market confuses the two major logics, and the sharp fall in the NASDAQ index is only a “reality test”

The Zhitong Finance App learned that David Allen, head of long and short strategy at Plato Investment Management, said in an interview that the sell-off of US stocks on Thursday was the result of investors mixing up the transformative potential of artificial intelligence (AI) with return on investment arguments.

On Thursday, the Nasdaq 100 index plummeted 6.4%, and the market capitalization evaporated by $2.3 trillion. Investors are selling off US technology stocks in a big way. The reason is market speculation that congressional Democrats may introduce tighter regulatory measures for the AI industry.

“Large hyperscale cloud service providers have always been in a race of life and death,” he said in an interview. The huge capital expenditure is approaching the critical point that the market can bear. “The changes brought about by the midterm elections have become a catalyst for this round of drastic revisions.”

He said that rising bond yields are prompting investors to question whether the productivity and profitability dividends promised by AI can be delivered.

Allen said that Plato has been shorting Australian data center operator NextDC Ltd for five years, and pointed out that the stock fell 45% in a single day last month and then rebounded. He pointed out that huge capital expenses and the growing collapse of social permits required to build data centers are key weaknesses common to these companies.

Vihari Ross, portfolio manager at Antipodes Partners, said in another interview that this sell-off is not so much a sign that AI companies are facing structural trouble, but rather a realistic test of the next phase of these investments.

“To implement these AI projects, huge amounts of debt are required — which means capital costs and interest rates are critical. At the same time, the project must also guarantee sufficient electricity supply and that terminal demand can be maintained,” she said. “It is unreasonable to price all relevant companies with a perfect and optimistic outcome.”