AI presents adjustment risks!

Written by: Zhang Yaqi

Source: Wall Street Watch

ARK Invest CEO "Cathie Wood" warned that as interest rates may begin to rise next year, the market will face a "chilling" adjustment, and valuations in the AI-related fields will undergo a "reality check."

On Tuesday, during the Future Investment Initiative (FII) summit held in Riyadh, Saudi Arabia, she stated that she expects the focus of market discussions to shift from interest rate cuts to rate hikes within the next year. This shift could trigger a severe market reaction.

Although Wood warned of short-term adjustment risks, she firmly refuted claims of an existing AI bubble. She believes that, in the long run, the valuations of large tech companies are reasonable, as the world is at the beginning of an AI-driven technological revolution.

Wood's remarks come at a time when concerns about the overvaluation of tech stocks are growing among major global financial institutions. Earlier this month, both the International Monetary Fund (IMF) and the Bank of England warned that global stock markets could face difficulties if investor enthusiasm for AI cools.

The market will face a "reality check"

Wood elaborated on her views regarding short-term market risks. She predicts that as the interest rate environment changes next year, the market will experience a "tremor."

"We will see the focus of market discussions shift from interest rate cuts to rate hikes at some point next year," Wood stated. She pointed out that while many believe innovation is negatively correlated with interest rates, historical data does not support this view. She hopes to "dispel this notion."

However, Wood added that considering "how today's algorithms operate," the rising trend of interest rates may still trigger what she calls a "reality check." This statement comes against the backdrop of companies and investors pouring massive funds into the tech sector, raising concerns about overvaluation.

Refusing to acknowledge an "AI bubble"

Despite warning of short-term risks, Wood remains bullish on the long-term prospects of AI and denies the existence of a bubble.

"I don't think AI is in a bubble," Wood directly responded when asked about the issue. She believes that we are currently only at "the beginning of a technological revolution." She acknowledged that the market may experience a pullback, as many are concerned about "whether this is all coming too much, too fast," but she believes that in the long run, the valuations of large tech companies will be reasonable.

Wood also pointed out that corporate acceptance and transformation regarding AI will take time. "Large companies need time to prepare for transformation," she added:

"It requires companies like Palantir to enter large enterprises and truly restructure them to really harness the productivity gains we believe AI will unleash."

Wood's views echo the cautious attitudes of several regulators and business leaders in recent times. Earlier this month, IMF President Kristalina Georgieva suggested:

"Buckle up: uncertainty is the new normal, and it will persist."

In addition to the IMF and the Bank of England, several prominent figures, including OpenAI's Sam Altman, JPMorgan CEO Jamie Dimon, and Federal Reserve Chairman Jerome Powell, have also expressed concerns about the potential market pullback risks brought about by the surge in AI spending.

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