According to Bloomberg, several well-known Chinese hedge funds have warned that the rally in AI company stocks is approaching a dangerous phase.
In their view, market expectations no longer line up with the fundamentals of these businesses, and the first signs of a cooldown are already visible. Investors are increasingly doubting whether the sector can keep up its current pace of growth.
Inflated Valuations and Other Weak Spots in the Sector
In a letter to investors, the management firm Wealspring Asset called the global market for AI companies a “super bubble” and warned that it could collapse in the near future. The fund explained this assessment by pointing to overstated business valuations and the fragility of many companies building AI infrastructure.
“A significant share of these companies run on ordinary business models, have no long-term competitive advantages, and are forced to keep ramping up capital spending just to sustain growth,” the fund said.
Wealspring compared the current situation to China’s overheated market in 2015 and suggested that some popular stocks could lose more than 80% of their value.
The fund Banxia Investment Management Center took a similar stance: its analysts believe the market is too optimistic about the prospects of AI model developer Anthropic.
“The company won’t live up to expectations for revenue growth,” the experts emphasized.
Among the risk factors, Banxia singled out the rising costs that big tech companies face in using AI models, along with intensifying competition that could chip away at Anthropic’s popularity among developers.
Banxia’s head, Li Bei, urged investors to exercise the utmost caution when buying shares in AI companies.
Despite the warnings, AI company stocks are holding strong: an index of such companies in China has climbed more than a third since the start of the year.