World Economic Forum: Barclays Sees Strength in AI Bubble

As the World Economic Forum kicks off in Davos, Switzerland, Barclays Investment Bank’s Head of Economics Research has reassured investors that the AI investment boom is sound, and that any bubble that is forming is unlikely to burst.

Speaking on a World Economic Forum podcast, Christian Keller noted the productivity benefits that AI is bringing globally, and how that is impacting tech valuations.

He says: “The trade tension, the fragmentation of the global economy… and on the other hand you see the big promise of AI: the already-happening investment boom and the promise of future productivity growth. 

“I think [there is] this tension and whether there could be a potential adjustment – for example – in tech valuations. 

“The reason why people have been more relaxed about this at this point is that in contrast – for example – the dotcom bubble that [is] often cited from the late 90s [is] so far at least… the boom in investment has not been driven by debt. 

“These are companies: large companies, well-established business models with very good earnings and very high cash cushions. They use that cushion and their earnings to invest in something they believe in.”

“So that is the theme and that, I think, creates a lot more confidence by a lot of investors.”

“And those are the reasons why people say, ‘look, even if it is a bubble, it's probably a good bubble.’ 

Impact of a change in valuation

He adds that even if there was to be a market correction, society would still benefit from the additional technology infrastructure, including networks and data centres.

The economist says that even parts of society that believe they have no engagement with the tech sector are heavily impacted by it, so the impact of any adjustment in tech valuations would be felt widely.

“I would say, you know, even those who believe they don't own tech stocks, they may not [have] a portfolio where they directly own them, but if they have some kind of investment or they have a pension invested in stocks, [they are] probably more exposed than they may think. 

“Even if they're not in the US – because US stocks have such a large share in the global value of stocks and the magnificent seven or the highly concentrated tech stocks play such a great role - probably everyone will be affected.”

Five big themes run through the Davos Annual Meeting

Christian is one of the forces behind the World Economic Forum’s Chief Economist’s Outlook, which is based on the views of a diverse group of global economists working in multiple industry sectors.

The World Economic Forum runs throughout this week in Davos, Switzerland, with most of the world’s leading Government, academic and business leaders in attendance.

This 56th Annual Meeting sees the participation of a record 400 top political leaders, including around 65 heads of state and government, nearly 850 of the world’s top CEOs and chairs and almost 100 leading unicorns and technology pioneers.

Discussions are centred around what the World Economic Forum sees as five key global challenges: cooperation in a contested world, unlocking new sources of growth, investing in people, deploying innovation responsibly and building prosperity.

The World Economic Forum believes that amid rising global fragmentation, accelerating complexity and rapid technological change, the need for an impartial platform for dialogue has never been greater, and it has themed the Annual Meeting accordingly.

The responsible use of AI and its impact is set to dominate many discussions.

J.P. Morgan has taken a similar view to the WEF with regards to the prospect of an AI bubble bursting. 

It says that while ingredients for an artificial intelligence bubble are "certainly in place", capital expenditure on AI will continue to grow.