UBS CEO Warns: Democratic Party Sweeps or Slows Down AI Production Capacity Construction, Valuation Questions Are “Very Important”

The Zhitong Finance App learned that UBS Group CEO Sergio Hermorti said that the Democratic Party's sweep in the US midterm elections may trigger a slowdown in artificial intelligence production capacity construction.

In an interview in Sydney on Monday, he said, “Investors are rightly questioning how much value this cycle can actually create.” “The question is more about timing, and how quickly you can actually reap all of these benefits. In this sense, you'll see some questions surrounding the valuation, which is very important.”

Candidates who advocate stricter regulation of AI have won a number of key congressional elections. Investors are re-weighing valuations after the fall in highly valued tech stocks, and this development is worsening the already fragile global market environment.

Elmorty said, “America's political progress may also trigger a slowdown in production capacity construction. The “AI cycle” will definitely be a very strong growth engine in the medium to long term. In the short term, it may still be a highly volatile subject, which in turn may create potential volatility in financial markets.”

The midterm elections added a new catalytic factor to the closing of AI deals. In previous weeks, the market had doubts about whether the huge investment in technology would pay off. In anticipation of Democrats controlling Congress, regulations will become stricter, which has heightened concerns about the growth prospects of chipmakers and data center suppliers, and propelled US tech stocks to record their steepest decline since 2020.

Ermorti also said that inflation remains a key risk that is difficult for the market to price. Strong employment data last week has rekindled market expectations that the Federal Reserve will raise interest rates again.

“The stickiness of inflation and the fact that central banks may need to maintain high interest rates longer than expected are probably still underestimated,” he said.

Ermorti also said he would like to see European policymakers show greater will in dealing with fiscal concerns. When asked if he was concerned about the stability of the European financial system after French bond yields soared, Ermorti explained his concerns.

“'Worry' may be overstated, but my concern is that things won't be taken seriously enough and quickly enough to address the risk of infection — this is probably the most significant risk,” he said. “In this sense, I really hope the system can put in place urgent measures to curb this potential contagion.”