Big investors eye AI gold rush but urge discipline on sky-high valuations

ABU DHABI

Leading investors at Abu Dhabi Finance Week raised concerns over the lofty valuations of AI-related companies but emphasised that investment in the infrastructure underpinning the sector’s long-term growth cannot be ignored.

Tech giants such as Alphabet, Meta and Oracle have recently tapped debt markets to keep pace in the rapidly evolving artificial intelligence race, fuelling fears of a potential AI bubble.

For many of the financiers attending the state-backed conference, AI was the dominant topic.

Franklin Templeton CEO Jenny Johnson described current market activity and bubble fears as “the early days of the gold rush.”

“Who cares? So there’s seven stocks. We’re talking about one of the greatest technological changes in our lifetime, and it’s a bit like saying the picks and shovels got really expensive,” Johnson said during a panel discussion.

“We haven’t even begun to see the impact of AI. It will take years before the technology is transformative enough to show up meaningfully in company earnings.” Franklin Templeton manages investments totalling about $1.7 trillion.

Blackstone CEO Stephen Schwarzman highlighted the enormous energy demands AI brings.

“We’re going to have to theoretically double the size of our electricity grid to deal with this. That’s a big thing… to create electricity, you have to have a lot of other things happen in society,” Schwarzman said.

Meanwhile, Abu Dhabi Investment Council (ADIC) CIO for public markets Shiv Srinivasan called AI-related stocks a compelling opportunity despite high valuations.

“I like AI and biotech; they have been big winners. I continue to like them,” Srinivasan said, adding that the industry is “in the middle of its journey.”

Some hedge fund managers sounded a more cautious note. TCI founder Chris Hohn, whose $60 billion fund focuses on disruption, said certain AI investments “do not make any sense at this stage.”

“Forces of disruption are increasing,” Hohn said. “Investors’ best universe is limited and decreasing. Uncertainty and risk factors are off the charts.”

KKR’s global head of real assets, Raj Agrawal, urged investors to focus on infrastructure, particularly data centres, as the most tangible route to capitalising on AI.

“What you need to be cautious of is paying big multiples that require growth in a certain period to get your capital back,” Agrawal said. Oracle, for example, is investing heavily in AI data centres, which could leave its free cash flow negative for years, according to Visible Alpha.

Khaled Al Shamlan Al Marri, chief executive of real assets at Mubadala Investment Company, said the sovereign wealth fund is prioritising disciplined investment principles rather than chasing aggressive growth in the sector.

KKR manages $723 billion in assets, while Blackstone is one of the largest alternative asset managers globally.