AI investors or casino gamblers? What Broadcom CEO Hock Tan said that sparked sharp global AI selloff

ETMarkets.com

Global AI stocks plunged, following Broadcom CEO Hock Tan's comments.

Tan’s comments rattled the already fragile global AI trade, while several analysts continue to warn of a bubble-like situation following the excessive frenzy and massive spending by hyperscalers. “A lot of investors have no clue what they are investing in. They set very extreme expectations only to find out that it’s almost like they are in a casino,” Tan said during an event in Singapore.

OpenAI’s $50 billion revenue doesn’t guarantee long term profitability: Broadcom CEO

The head of Broadcom, which designs some of the components integral to the global data center buildout, also criticized businesses which were wasting money on AI initiatives and questioned the longer-term economics of money-losing AI labs. Tan said that ChatGPT-maker OpenAI reaching annualized revenue of $50 billion in September points to a viable business model but offers little guarantee on the company’s long-term profitability.

“For now it is still losing money because they are spending a lot on training. So frankly, it does not tell anything at this point except that there is a lot of potential revenue growth out of providing frontier generative AI models,” he said. This comes after OpenAI missed its earlier revenue guidance, spooking investors.

Also Read | OpenAI revenue shock sends Nvidia, Oracle and CoreWeave stocks lower today. Here's what happened

Many users wasting money on tokens to experiment with AI: Broadcom CEO

Speaking at the event, Tan also warned that insufficient capital could become the next constraint on the industry’s growth. He noted that AI model developers need to look for customers that can generate returns from deploying the technology, rather than relying on users who are now “wasting money” on tokens as they experiment with AI.

“When you are a kid you go to a video arcade, you play. Your parents give you $10 of tokens, you finish it in 10 minutes and you haven’t learned anything,” he said. “That’s what is happening in enterprises today.”

AI stocks plunge

As a result of Tan’s comments, global AI stocks plunged. South Korea’s Kospi, seen as the face of the excess optimism around AI and the equally sharp concerns, plunged around 6%. This came as heavyweight chipmakers Samsung Electronics and SK Hynix shares crashed up to 9%.

Japan’s Nikkei meanwhile fell nearly 2%. However, India’s IT stocks, seen as the anti-AI trade, rallied up to 5% amid the global tech selloff.

Also Read | AI traders behaving like casino gamblers? What made chip trade toxic and why that’s good news for India