‘Extreme’ AI spending could destroy capital – Greenlight Capital’s David Einhorn

[Advanced Microprocessor connected with a Motherboard, Ai chatbot and machine learning technology with artificial intelligence and robot icon concepts on abstract background, 3d rendering]

“Extreme” and unprecedented AI spending could cause capital destruction in the current economic cycle, according to Greenlight Capital founder and president David Einhorn.

“The numbers that are being thrown around are so extreme that it’s really, really hard to understand them,” he said, during a panel discussion hosted by Simplify Asset Management at the New York Stock Exchange Thursday evening.

The hedge fund manager added that the unprecedented amount of “extreme” spending on AI infrastructure by giants such as Apple (AAPL [https://seekingalpha.com/symbol/AAPL]), Meta Platforms (META [https://seekingalpha.com/symbol/META]), an OpenAI could be tied to a “reasonable chance that a tremendous amount of capital destruction is going to come through this cycle.”

Even if AI technology proves to be transformative, surpassing analysts’ bullish forecasts, returns are highly uncertain, he said, and questioned whether spending billions or trillions of dollars a year will be worth the investment.

Recently, Nvidia (NVDA [https://seekingalpha.com/symbol/NVDA]) announced [https://seekingalpha.com/news/4497243-nvidia-plans-to-invest-up-to-100b-in-openai-progressively-to-build-ai-data-centers] plans to invest $100B in OpenAI to build data centers. In addition, Nebius Group (NBIS [https://seekingalpha.com/symbol/NBIS]) signed an agreement [https://seekingalpha.com/news/4493205-nebius-rockets-after-inking-17_4b-deal-with-microsoft-for-ai-infrastructure] with Microsoft (MSFT [https://seekingalpha.com/symbol/MSFT]) for $17.4B in AI infrastructure over the next five years. Alphabet (GOOGL [https://seekingalpha.com/symbol/GOOGL]), (GOOG [https://seekingalpha.com/symbol/GOOG]) is also planning to invest [https://seekingalpha.com/news/4489794-alphabet-to-invest-9b-in-virginia-for-ai-and-cloud-through-2026-pichai-says] $9B AI and cloud initiatives through 2026.

Einhorn said while many projects will be built, investors may not see the expected payoffs.

He also spoke about weak [https://seekingalpha.com/news/4493395-us-jobs-gains-weaker-by-911k-in-year-through-march-bls-revision-show#hasComeFromMpArticle=false] job growth. “I’m a little bit more of the view that we’re heading into or have been in a recession,” he said. “Jobs aren’t growing, and the workweek is shrinking, and productivity is not that great.”

MORE ON THE MARKETS:

* S&P 500: P/E And Interest Rates Scare Me More Than Record Buffett Indicator [https://seekingalpha.com/article/4826192-s-and-p-500-pe-and-interest-rates-scare-me-more-than-record-buffett-indicator]
* The Impact On The Economy And Markets Of The Looming Government Shutdown [https://seekingalpha.com/article/4826183-impact-on-economy-and-markets-of-looming-government-shutdown]
* Market Outlook: I Still Don't See 1999 Or 2008 Signs Yet [https://seekingalpha.com/article/4825914-i-still-dont-see-1999-or-2008-signs-yet]
* Wall Street is mixed after PCE index data comes in line [https://seekingalpha.com/news/4499518-wall-street-dow-sp500-nasdaq]
* Wall Street opens higher as August PCE index comes inline [https://seekingalpha.com/news/4499401-stock-index-futures-rise-as-key-inflation-gauge-looms]