Three factors that would signal peak AI bubble - UBS

THREE FACTORS THAT WOULD SIGNAL PEAK AI BUBBLE - UBS

Almost as many investors who feel we're in an AI bubble are also hanging on to their AI investments, UBS equity strategists have found, suggesting that if we indeed are in one, we're not at the peak yet.

"Most felt we were in an AI bubble, but that far from the apex of a bubble peak and thus around 90% of the people who said we were in a bubble said they were still invested in many of the AI-related areas," they write in a Tuesday note.

Nevertheless, investors still have concerns, namely three.

The first UBS dubs "the smell of vendor financing with circularity of datacentre deals", as investors query just how Open AI will fund $1 trillion of datacentres.

Their second concern: "would there be sufficient electricity to power the datacentres?".

Lastly, the hyperscalers' revenue models have been under scrutiny.

So if we are in a bubble, but not yet at the peak, when can we expect to be?

UBS's global equity strategist Andrew Garthwaite - who has been sharing his detailed thoughts on the current AI bubble before it was fashionable - highlights three potential catalysts he says could mark such a turning point.

"The old timers like me believe that bubbles peak when; i) everyone rationalises the bubble (as they did in early 2000) and thus stop asking the question of 'when will the bubble peak'."

The second is when we get chronic overinvestment, says Garthwaite, while the third is clear-cut overvaluations.

As for AI winners in Europe, players quizzed by UBS mentioned the usual suspects; Legrand, Schneider Electric, Belimo, Halma and ASML, with the latter now counting between around 15-20% of its revenue beyond 2026 in AI.

(Lucy Raitano)

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