AI stocks are probably in a bubble - but might be worth holding on to, says Citadel's Ken Griffin

By Barbara Kollmeyer

Markets are starting to scrutinize AI, and that's a good thing, says Griffin

Citadel founder and CEO Ken Griffin says that even if AI stocks are in a bubble, they might be worth holding on to.

There's a bubble in artificial-intelligence stocks - but it's no reason to sell, one of the leading figures in finance said Tuesday night.

"The big picture is there is almost certainly bubbles within this moment in time. And any radical transformation of our economy is generally intertwined with a bubble," Ken Griffin said at an annual conference run by Citadel Securities, the market maker he mostly owns. Griffin is also the majority owner of the hedge-fund giant Citadel LLC.

Griffin drew on his experience in the dot-com boom a few decades ago, in which many internet companies were valued unrealistically.

"I just wish I had kept my Amazon stock (AMZN) from that moment in time. And the internet, which was the great bubble, could it be more of a part of our life today than it is?" he said in an interview published Wednesday.

"What's left in the wake of these bubbles, if we want to use that word, is often game changing for the world. And the companies that are on the other side of that bubble are the market leaders for decades to come," he said.

Griffin discussed the recent slump in semiconductor stocks - the VanEck Semiconductor exchange-traded fund SMH has dropped in 10 of the past 11 trading sessions - and uncertainty surrounding some of the biggest public listings to come in the AI space.

The Nasdaq Composite COMP has closed with losses in seven of the last 10 sessions. (It was up nearly 0.8% by midday Wednesday.)

"I think this market is actually experiencing people doing research," he said, adding that it marks a change from the past couple of years, when there was a sense of just buying the entire AI supply chain, from hyperscalers and semiconductor makers to high-tech companies in South Korea, Taiwan and Japan.

While it's clear that there are "extremely high margins" for makers of memory in the AI supply chain, "we're reaching a point where people are becoming more discerning," he said. "People are now starting to look out two years, three years. How long is this going to last?"

One major issue he noted for the industry is the potential overcapacity of graphics processing units (GPUs), vital to the AI build-out for training large language models through highly technical calculations.

"We saw this actually with the telecom build-out back in 2000," he said. "We built more fiber than we had demand for, and the price of telecommunications just went straight down."

That question now hangs over GPUs. "If we reach a point where the provisioning of GPUs exceeds demand for GPUs, marginal pricing will actually go into free fall. And that really upends all the investment assumptions that people are working with today."

Investors are stepping back and asking what the "useful life" of a GPU looks like right now, according to Griffin. "There are people that are earning extraordinary pricing on GPUs that are five or six years old. That probably doesn't persist for another five or six years," he said.

"So there's a growing set of concerns that, 'I can't give the same capitalization rate or the same revenue models to Year 7, 8, 9 of a chip in the future that maybe I was using 12 months ago.' So I think we're really grappling with just how far will this demand carry us in the marketplace."

Griffin said U.S. companies need to decide better which parts of their businesses will require "extremely high pricing for the state-of-the-art models from OpenAI and Anthropic," and where they can rely on cheaper open-source models.

"I think all of American corporations [are] looking at their bills from Anthropic and OpenAI and going, 'OK, we need to think about how to make sure we're getting productivity out of this.' And they will in many areas, but in some areas you've got a lot of waste, and people are going to have to pivot around that," he said.

Don't miss: In the battle for AI supremacy, China is only six months behind the U.S. - which means it's winning, says former Google CEO

"What we don't know is, how as these models become more intelligent, how much they are able to demand high pricing because they help to actually solve the problems that have vexed humanity for centuries," he said.

U.S. stocks SPX were higher Wednesday after upbeat results from SpaceX and Super Micro Computer.

-Barbara Kollmeyer

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

10-21-26 1127ET