"Wooden Sister" joins the AI bubble debate: Bubble does not exist yet, but AI stock valuation may face a "reality check"

Ark CEO Cathy Wood said on Tuesday that she does not believe there is a bubble in the current artificial intelligence (AI) market, but warned that the valuations of AI-related stocks may soon face a "reality check". Wood, speaking at the Future Investment Initiative conference in Riyadh, Saudi Arabia, stated that as interest rates begin to rise, "the market will experience a shock". Wood pointed out, "We will have a moment in the next year where the market's focus will shift from rate cuts to rate hikes." "People think that innovation is inversely related to interest rates, but historically that's not the case. I want to break that misconception. Nevertheless, we still believe the market will face a reality check." However, Cathy Wood's Ark Invest continues to make significant investments focusing on innovation and technology stocks. Noteworthy buys include Robinhood, Netflix, and Baidu Inc Sponsored ADR Class A, among others. At the same time, the fund has also reduced holdings in stocks like Shopify and AMD. Additionally, the fund sold 4,064 shares of Palantir Technologies in October. It is worth noting that concerns about an AI bubble have resurfaced in recent times, as valuations of AI-related companies soar, there is a massive influx of AI investments, and the AI ecosystem becomes increasingly closed-loop. Wall Street opinions on this matter vary. For example, a fund manager survey conducted by Bank of America Corp in October showed that as AI concept stocks have experienced a strong rally this year, the global fund managers who believe that this sector is in a bubble have reached a historic high. In this survey, about 54% of respondents indicated that tech stock valuations are currently too high. Impactive Capital managing partner Lauren Taylor Wolfe has stated that the AI industry is currently in a bubble that will eventually burst. She compares the current AI investment frenzy to the dot-com bubble of the late 1990s and says, "We are definitely in an AI bubble. The bubble will burst. I don't know the timing or extent of the collapse, but many people will suffer heavy losses." Her main concern is the significant disconnect between AI investments and returns, with trillions of dollars being planned to invest in the AI sector while the tech behemoths generate only billions of dollars in free cash flow. She questions the financial sustainability of current AI investments: "Who can prove that tens of trillions of dollars in profits can be generated in the next five years? It's simply not possible from a mathematical perspective." However, Goldman Sachs Group, Inc. states that while there are some worrying factors, they overall believe that the US tech industry has not yet entered a bubble (at least not currently). The bank's strategists point out that although some characteristics of the current period resemble past bubbles and cyclical trading should be watched closely, public market valuations and capital market activity levels are still lower than the peak of the dot-com bubble era. They also highlight that the "big seven" tech giants continue to generate excess free cash flow, engage in stock buybacks and pay dividends, which was rare during the dot-com bubble era. Furthermore, Goldman Sachs Group, Inc. emphasizes that opportunities still exist in the tech industry, but diversification is a wise move. NVIDIA Corporation CEO Jensen Huang responded positively to concerns about the "AI bubble" at the GTC conference held in Washington on Tuesday, stating that the AI industry has reached a turning point where customers are willing to pay real cash for models, and there is a commercial return on expensive computing infrastructure, forming a "positive cycle".