Name: Is a bigger AI correction coming?
Uploaded: 2025-11-18T18:22:50.712Z
Duration: 7 min 12 s
Description: The Investment Committee debate whether a bigger correction in the AI sector is coming as the selloff in tech continues.

The Investment Committee debate whether a bigger correction in the AI sector is coming as the selloff in tech continues.

The release of Open AI's ChatGPT has accelerated the development of artificial intelligence and warnings about its impact on society.

Rise of AI

Recent discussions among market analysts highlight increasing concerns about a potential correction in AI and technology stocks. A Bank of America survey found that over half of fund managers believe AI stocks are in a bubble, while institutional investors remain hesitant to sell major tech names like Microsoft, Amazon, and Google. 

JP Morgan's Dan Pinto and Rothschild Redburn have issued warnings and downgrades, respectively, citing overextended valuations and questioning the sustainability of current growth expectations. Despite these concerns, some experts argue that current price-to-earnings multiples for leading tech firms are justified by their growth rates, viewing the current market downturn as a sentiment-driven correction rather than the bursting of a bubble.

Is a bigger AI correction coming?

But we're still about 1% down on both the Dow and the NASDAQ. You know the kind of week it is. NVIDIA is tomorrow afternoon, and that's going to be big. The S&P 500 is below its 50-day moving average, so there's some technical damage to watch as well. Malcolm, I'm coming to you first. I thought one of the most interesting things today is we, as an investor group, take a look at these markets, and we worry about the AI trade, that Bank of America's fund manager survey. More than 50% of those asked continue to think AI stocks are in a bubble. That's pretty interesting, don't you think, that more than half of fund managers in this survey think we're in an AI bubble? These are people who are, you know, deploying capital and getting skittish probably because of what they see in this market. What do you think? I hear you, but I don't know that I see it that way. I think those same fund managers, if they were asked the second question, are you selling, the answer would still be no. So the concern is I have to own these MAG-7 names, I have to own these AI-heavy names because I can't afford to get caught out right now of being underweight tech. And so those same fund managers, until we see, I saw the same talking point you're talking about, but nowhere in there are we saying that we don't want to own Microsoft, we don't want to own Amazon, we don't want to own Google, the hyperscale is- Somebody's been selling the names. I didn't want to front run that one. I thought I wouldn't steal your thunder on that one. That's okay. But I mean, somebody's obviously been selling these stocks. They're all, you know, well off their 52-week eyes. I don't think it's these same institutional fund managers, though, that we're talking about. I think a lot of retail is getting skittish right now. You see the price of Bitcoin and it obviously has to have a correlation to everything that's happening in the riskier names. A couple of weeks ago, you had Lizanne Saunders on, she was talking about how the retail investor at Schwab is focused more on those quantum names, the crypto names, those they went downstream into the micro caps, and they were probably going to be rotating back into the things that we consider them finding their religion. I think she was absolutely right, and this is us seeing the culmination of that. So Josh, you have the stat that I read, and then you have JP Morgan's vice chairman, Dan Pinto, he warns of a possible correction in valuations. And then on top of all of that, you have Rothschild Redburn today downgrading both Microsoft and Amazon to neutral from buy. They say, quote, it's time to take a more cautious stance on the hyperscalers and move beyond the industry's reassuring trust us. Gen AI is just like early cloud 1.0 narrative, which looks increasingly misplaced. This is a big call today. Microsoft shares are lower. By the way, Microsoft's underperforming the S&P now over the prior six months. Yeah, I think I think that's I think that's a perfectly respectable call to make. And it's not impugning Microsoft strategy for Gen AI, and it's not specific to anything that these companies are doing. It's really more about how much future earnings growth have we already priced in. It's not like this rally started three months ago. This is now three years of rallying on essentially the same concept that we're basically going to be ripping out CPU driven data center equipment, replacing it with GPU driven equipment. And then that upgrade cycle is going to go on for years and years and years to come without any sort of pause or hiccup or taking a breath to rethink some of the numbers involved. And it's just an unrealistic idea. And so I think what we saw in the share prices of the mag seven, at least through the first half of the year, was just a complete and total absence of any sort of doubt. And what's changed in the last, let's say, two to three weeks is a lot more questions being asked. If you're bullish and if you're constructive, you actually would prefer this scenario versus a continued melt up that goes on for another two or three months right into, you know, early January, February. And then all of a sudden we have empire state building shaped charts, parabolic moves higher in multi trillion dollar companies. And instead of a dip or a correction, we get something much worse. I prefer this. I like the questions are being asked. And if I were to sell side analysts and I had the opportunity to ask Jensen on the earnings call tomorrow night, any one thing, Scott, it's exactly about these concerns. Yes, of course, we all want to know about gross margins, et cetera, et cetera. But what we actually want to hear him weigh in on is the depreciation debate that sparked this latest sell off. We want to know, Jensen, Jensen, you have openly mocked people for using previous generations of of your equipment, of GPUs. You have sped up the upgrade cycle to once a year, from once every 18 months or once every two years. Congratulations. How do we square the circle with companies that are in the cloud, the hyperscaler or the neo scaler who are talking about five and six year depreciation schedules? Can you harmonize those two things in a way that makes us all feel comfortable that we're not going to have that hiccup? I mean, I don't know if someone's going to ask him that question, but that is the only question that I really need to hear from him tonight, tomorrow night, right now, Jimmy, you own both Microsoft and Amazon. So you want to weigh in on this downgrade? It's a pretty striking call here. And the language is right in the face of these two companies. Time to take a more cautious stance on the hyperscalers and move beyond the industry's reassuring. Trust us. Yeah, it feels to me, Scott, like that's reflective of a mood right now, a mood that I would characterize as a correction going on in the markets. I will admit that a week ago, I thought this was just a little liquidity lightness that was causing things. But now it has evolved into something that I would characterize as a sentiment driven correction where people are expressing sentiments like this analyst call right now. What you said at the time, I mean, you tried to blame it on the government shutdown. OK, I've moved past that and I've said this has evolved into a correction, which is what I believe it is. However, to be more specific, and this is where this note that you just referenced comes into play, it is sentiment driven. If you're going to tell me that fundamentally there is a need for a bubble to be popped when I'm looking at NVIDIA, the bellwether, and I'm sorry you asked about Microsoft, let's do Microsoft. I asked about both Microsoft and Amazon, which you own both of them. These forward multiples, 30-ish, 34-ish, I think for Amazon, 30-ish for Microsoft are to me acceptable given the growth rates that we see ahead. You have to doubt the growth rates and earnings ahead to say that this is in a bubble. And I will draw the comparison to the quintessential bubble, which was Cisco in 1999 at 120 times earnings. Given the earnings growth rates of Amazon and Microsoft to be at 30, 34 times forward does not frighten me at all. This is a correction. It will come to an end probably pretty soon.

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Is a bigger AI correction coming?

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Rise of AI