CNBC's "Mad Money" host Jim Cramer highlighted the conflicting forces driving the artificial intelligence (AI) sector, pointing to both caution and urgency in corporate spending. This comes amid a report from GQG Partners, which argues that the AI investments are exhibiting the dotcom era “on steroids.”
Cramer Says AI Spending Hate Won't Stop The Demand Surge
Cramer’s post on X captures the essence of the AI arms race that GQG believes is inflating a dangerous bubble.
He highlights that a simultaneous “revulsion” toward the massive spending on AI and a “desperate need to spend to stay up with demand” is reflected in soaring capital expenditure (CapEx) for AI firms.
Current Conditions More Fragile Than Dotcom Bubble?
This observation of market conflict comes as global investment firm GQG observed that the tech sector exhibits “dotcom-era overvaluation” and warns that the consequences of the current boom could be worse than the dot-com collapse of the late 1990s.
According to GQG’s report, big tech’s CapEx as a percentage of EBITDA is now between 50% and 70%, levels comparable to AT&T Inc. (NYSE:T) at the height of the 2000 telecom bubble and Exxon at the 2014 energy bubble’s peak.
The firm cautions that historically, companies with such high capital intensity tend to be “structurally poor investments”.
GQG Fills The ‘Revulsion’ Gap Stated By Cramer
The “revulsion” Cramer points to is substantiated by GQG’s analysis of “deteriorating fundamentals” across the tech landscape, including decelerating revenue growth, collapsing free cash flow, and intensifying competition.
While many investors argue that today’s tech giants are higher-quality businesses than those of the dot-com era, GQG refutes this, stating that on a growth-adjusted basis, tech companies today are more expensive.
Underscoring this, the report notes that 35% of the S&P 500’s weight is now driven by companies trading at over 10 times sales, surpassing the 25% level seen at the dot-com peak.
Better Opportunities Outside Big Tech Spending On AI?
Ultimately, GQG Partners believes the current market is at a “significant inflection point,” where AI-related revenues still pale in comparison to the massive capital being invested.
The firm concludes it sees “better investment opportunities outside the tech sector,” urging caution for those betting heavily on the AI boom.
Price Action
Here is a list of some Big Tech firms and AI-linked exchange-traded funds that investors can consider.
| Stocks | YTD Performance | One Year Performance |
| Nvidia Corporation (NASDAQ:NVDA) | 29.01% | 47.62% |
| Apple Inc. (NASDAQ:AAPL) | 4.34% | 11.90% |
| Microsoft Corp. (NASDAQ:MSFT) | 21.66% | 18.65% |
| Amazon.com Inc. (NASDAQ:AMZN) | 0.22% | 13.79% |
| Alphabet Inc. (NASDAQ:GOOGL) | 32.85% | 55.07% |
| Meta Platforms Inc. (NASDAQ:META) | 26.06% | 34.10% |
| Tesla Inc. (NASDAQ:TSLA) | 12.28% | 67.48% |
| ETF Name | YTD Performance | One Year Performance |
| iShares US Technology ETF (NYSE:IYW) | 22.23% | 29.73% |
| Fidelity MSCI Information Technology Index ETF (NYSE:FTEC) | 19.83% | 28.32% |
| First Trust Dow Jones Internet Index Fund (NYSE:FDN) | 16.26% | 33.33% |
| iShares Expanded Tech Sector ETF (NYSE:IGM) | 23.77% | 32.99% |
| iShares Global Tech ETF (NYSE:IXN) | 21.22% | 24.93% |
| Defiance Quantum ETF (NASDAQ:QTUM) | 28.99% | 71.40% |
| Roundhill Magnificent Seven ETF (BATS:MAGS) | 19.22% | 36.71% |
The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, rose in premarket on Wednesday. The SPY was up 0.19% at $664.49, while the QQQ rose 0.29% to $599.92, according to Benzinga Pro data.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga
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