AI stocks plunge as tech chief calls market a ‘casino’
AI stocks have plunged after the boss of one of the US’s biggest technology companies said the market had become “a casino”.
Hock Tan, the chief executive of chipmaker Broadcom, which is worth $1.7tn (£1.3tn), said investing in the AI boom was increasingly akin to gambling.
He told a conference in Singapore: “A lot of investors have no clue what they are investing in.”
Mr Tan added that investors had “very extreme expectations only to find out that it’s almost like they are in a casino”.
Asian stocks fell sharply overnight. South Korea’s benchmark Kospi index fell as much as 7.4pc on Tuesday, while Japan’s Nikkei 225 dropped as much as 2.9pc.
Shares in semiconductor manufacturers Samsung and SK Hynix dropped as much as 9pc and 10.8pc respectively, while Japanese memory company Kioxia sank more than 14pc.
On Wall Street, Micron fell by as much as 6.1pc. It makes dynamic random-access memory (Dram) chips similar to Samsung and SK Hynix. Fellow chipmakers Nvidia and AMD fell as much as 1.4pc and 4pc, respectively.
The sell-off came as the International Monetary Fund (IMF) issued a warning that an AI stock market crash could trigger a financial crisis that would threaten the global economy.
In its starkest warning yet on the sector, the IMF said lofty valuations and a growing debt pile meant it posed a threat to financial stability.
Athanasios Vamvakidis, a deputy director of the IMF, said AI stocks had been a “strong engine for the real economy” suggesting that consumers would pull back spending if stocks crashed.
Mr Vamvakidis said: “There is no doubt that if you get an AI market correction, it will affect the economy and have broader implications. How severe it is going to be depends on the scenario that will unfold.
“The exposure of the rest of the world to US assets, particularly AI, is the highest it has ever been. So this is supporting the global economy through wealth effects today. But if you get a market correction, it can have broader implications.”
Broadcom’s Mr Tan also raised concerns that financing the substantial spending demands of the AI boom was becoming increasingly challenging. Mr Tan said funding “might be the biggest constraint”.
Technology companies have raised hundreds of billions of dollars in debt to fund construction of data centres and acquisition of vital chips. SpaceX, Google and Amazon have all raised tens of billions in new debt in recent months.
South Korea’s Kospi, which includes a number of chipmakers that have benefited from the AI boom, more than doubled in value in the first half of this year.