By Adam Clark
A warning about a potential bubble in artificial-intelligence investment has come from an unexpected quarter -- the chairman of Chinese e-commerce company and AI champion Alibaba Group.
At Tuesday's HSBC Global Investment Summit in Hong Kong Alibaba Chairman Joe Tsai issued his caution about U.S. technology companies' spending, but it looks to have had a bigger effect on Chinese stocks.
"I'm still astounded by the type of numbers that's being thrown around in the U.S. about investing into AI," Tsai told the audience.
"People are talking, literally talking about $500 billion, several hundred billion dollars. I don't think that's entirely necessary. I think in a way, people are investing ahead of the demand that they're seeing today, but they are projecting much bigger demand," he said.
Alibaba shares fell 3.8% in Hong Kong, while search company Baidu dropped 1.8% and Tencent Holdings fell 2.1%.
Alibaba said recently that it would invest at least 380 billion yuan ($52.4 billion) in cloud computing and AI over the next three years. By comparison, Amazon.com intends to spend $105 billion this year alone and all of Microsoft, Google-parent Alphabet and Meta Platforms plan to spend more than Alibaba in a single year on capital expenditure.
That has caused worries that spending on AI hardware from the likes of Nvidia might not pay off and the market is watching for any signs of a pullback. TD Cowen analysts reported in a research note last month that Microsoft had canceled leases with "at least two data private center operators" in the U.S., amounting to a few hundred megawatts.
That caused a brief panic that big American tech companies might have overestimated demand for AI but Wall Street is still generally confident that companies are making sensible adjustments to their investment.
"The Chairman of Alibaba Group has warned about a potential bubble forming in Data Centre construction...We also think there is a likelihood of over-ordering of AI chips which is normal when any chip is on allocation for all customers amidst strong demand, as in the case of the Nvidia Blackwell," wrote Jefferies equity sales specialist William Beavington.
Write to Adam Clark at adam.clark@barrons.com
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(END) Dow Jones Newswires
March 25, 2025 09:13 ET (13:13 GMT)
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