AI: Mad Maths?

In this episode of The Capital Cycle Podcast, Edward Chancellor interviews Charles Carter, a European Portfolio Manager at Marathon, about the significant capital spending boom in artificial intelligence (AI). They draw parallels to the dot-com mania, expressing concerns about excessive investment and competition. They discuss the scale of current AI investment, citing estimates from Morgan Stanley, McKinsey, and Citi, and question whether the return on capital justifies the market's expectations, referencing Tobin's Q ratio. They explore the potential for overestimation of demand and the risk of losses in the AI ecosystem, while also acknowledging the potential for long-term productivity improvements. The conversation further covers the behavioral aspects driving AI investment, such as the fear of missing out and cannibalization, and the prisoner's dilemma facing major tech companies. They conclude by questioning whether the current investment is sustainable and likely to generate expected returns, given the potential for industry fragmentation and intense competition.