The backdrop of IBM (NYSE:IBM) stock falling on Tuesday provided an opportunity for investor Chamath Palihapitiya to share his latest thoughts on the AI sector and heavy spending leading to potential risks down the road.
• What is going on with IBM stock?
Palihapitiya on AI Spending
The CEO of 8090, Palihapitiya, is investing more of his time in the AI space and interacting with AI agents.
In the AI space, Pahlihapitiya asks if two or three companies are going to generate hundreds of billions in revenue, where is the rest of the money going to be made?
"I think you’re starting to see a little bit of the wheels come off," Palihapitiya said on CNBC Tuesday.
Palihapitiya used the cost of oil per barrel as an example, with some companies locking in prices with the largest companies in the space, then along come other oil providers, which are offering oil at minimal costs.
In this comparison, it was companies such as OpenAI and Anthropic as the large companies in the space, being disrupted by xAI’s Grok, a unit of SpaceX (NASDAQ:SPCX), and Meta Platforms Inc (NASDAQ:META).
Palihapitiya said if you bet early on one charging a lot, you could run into some downstream difficulty when you try to pass those costs onto others along the way.
The investor said this could be part of the reason why IBM stock was down on Tuesday.
"That has to play itself out."
The investor said that IBM stock is down while other tech stocks are up, as it could take years to find out who spent what and if they’re able to get back their costs.
Palihapitiya warns that top management at companies might have no idea what is happening when it comes to tokenmaxxing, or maximizing AI token consumption for productivity.
"CEOs and CFOs, in my opinion, probably have no idea how much tokenmaxxing is going on inside of their organizations. I suspect what’ll happen is one day you’re going to have a miss, and EPS will be off by a few pennies, and the CEO will say to the CFO, ‘What happened?’"
AI Spending Not Equal to AI Productivity
The comments from Palihapitiya on Tuesday follow a recent conversation he had about AI spending and AI productivity on an episode of "The All-In Podcast."
Palihapitiya said that of the S&P 593, which excludes the largest technology companies driving the AI boom in the S&P 500, the earnings per share growth is around 9% since generative AI became mainstream in conversation.
The investor said only about 2% of that growth is coming from AI-driven productivity, with the rest coming from share buybacks, inflation and price increases, as reported by 24/7 WallSt.
Palihapitiya said investors should try to separate the companies buying AI and those selling it, as the returns could be significantly different.
Photo courtesy: CarlaVanWagoner / Shutterstock.com
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