Pei-ju Lee quoted in Quartz article on AI boom

Bradley, Foster & Sargent deputy director of research Pei-ju Lee was quoted throughout a recent Quartz article about the AI boom and how some major investors are getting out or betting against it.

Pei-ju’s primary responsibility at BFS is to conduct research and analysis on individual stocks and industries, and no industry is more notable at the present time than AI. In the article, he explains the reasoning and historic rationale behind why some investors are reducing or short-selling AI stocks:

“After growing more than 60% in two years in row, hyperscalers’ (companies that operate massive, hyperscale data centers providing vast amounts of on-demand computing power, storage, and networking services) capital expenditures are expected to grow another 30% and top $500 billion in 2026, significantly higher than 10% growth projected in the beginning of 2025,” said Pei-ju Lee, deputy director of research at Bradley, Foster & Sargent, a financial advisory firm.

But markets are becoming increasingly skittish of hyperscalers’ aggressive AI spending.

“That’s because big technology firms were able to fund AI investments over the past two years with enormous cash flow generated by their cash cow core businesses, but recently have been turning to borrowing,” Lee said.

For instance, in October alone, Meta and Oracle borrowed $70 billion through bonds and loans. “Even more concerning is the use of the notorious off-balance sheet debt,” Lee added. “Meta and Musk’s xAI added almost $40 billion in debt in the past month. For those who remember Enron’s epic collapse, the rise of off-balance sheet debt could be the canary in the coal mine.”

Market experts also worry about a systemic crisis, as these investments now account for more than 40% of U.S. GDP growth.

“In particular, the majority of the spending hinges on OpenAI’s whopping $1.4 trillion commitment,” Lee noted. “If OpenAI, which is not going to be profitable until 2029 at the earliest, can’t secure funding and fails to make good on the commitment, the market is going to react very negatively. Then, the valuation of the high-flying AI arms dealers, like semiconductors and cloud infrastructure companies, is going to be significantly compressed.”

Pei-ju later mentioned the dot-com era around the turn of the century and pointed out the inevitability of the internet’s role in society. But something had to happen first.

Market gurus say history shows that past revolutionary technology trends have always experienced turbulence, and AI is no different. “Just like the dot-com era, while all the internet vision turned out to be true, the over-investment bubble had to pop and the over-valued market had to collapse before the applications took off,” Lee said.

For more on AI, see Pei-ju’s recent blog post, The Debt-Fueled AI Race – How to Deal with a Potential Bubble Burst?