Sam Dickie: Fisher Funds expert on the growing concerns surrounding AI investments

Artificial intelligence technology continues to attract attention from investors, but there's growing concerns over an 'AI bubble' situation.

Officials at the Bank of England recently flagged the risk that tech stock prices pumped up by the AI boom could burst.

Fisher Funds expert Sam Dickie explained further.

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Episode Transcript

Speaker 1 (00:00):
AI investments still on fire, but there is growing concern
that it may be a bubble. And there's also a
sense that maybe we're seeing a few things that are
quite similar to the dot com boom bust, vendor financing,
artificially inflated demand and so on. Sam Dickey from Fisher
Funds is with us. He Sam, what exactly is vendor
financing and why should investors care about this?

Speaker 2 (00:20):
Yeah, it's quite normal in many industries, so when supplies
lend money to customers specifically to buy their own products,
essentially paying customers to be customers. And it's often used
in small business sales or equipment sales when the buyers
otherwise can't get credit easily. However, it is also used
at big turning points in technology when massive, bold investment

(00:45):
is required, and when suppliers start leading billions of dollars
to customers so they can buy their own products. It's
arguably artificial demand, and history suggests we should stand up
and pay attention.

Speaker 1 (00:56):
Now, how does today's AI vendor financing compare to the
dot com bubble?

Speaker 2 (01:01):
Some similarity? So in two thousand, let's use Lucent as
the poster child. It made networking in telco equipment required
for their early internet and mobile boom, and they and
others were lending to large telcos but primarily small startup
telcos and internet service providers to stoke demand for their product.
And the thing was those small telco customers had were

(01:25):
burning cash and had stretched balance sheets. Now today in Vidia,
AMD and oracle It are funding customers like open Ai,
the owner of ch GBT, and Corewe who's a sort
of data center provider, to buy their chips or space
and their data centers. So definitely some similarities. And for context,
in two thousand, Loocent and Co lean around twenty five

(01:45):
billion dollars, which was about one hundred and fifty percent
of their earnings back then. Today the number is greater
than one hundred billion, but it's a smaller percentage of
earnings because the balance sheets and cash flow generation of
the companies today, both on the on the vendor side
so in Video and Co, but also their big customers
like Meter and Google are significantly healthier than Loosen to

(02:07):
the startup customers, so it's not nearly as severe as
two thousand yet, And at one point in two thousand,
just for context, Loosen wasn't even selling equipment anymore. It
was just giving stuff away on credit and calling it
a sale. So there was some fraud back then as well.

Speaker 1 (02:21):
Yeah, what are some of the warning signs that we're
seeing today.

Speaker 2 (02:25):
I think it's apart from the circular nature of this
the money merry go round, it's the sheer scale of
the deal. So you and I talked last week about
the staggering deal where open ai signed a contract to
pay Oracle three hundred billion dollars over five years. Yet
open ai itself only has fifteen billion dollars in revenue
in total today and it just signed up to pay

(02:45):
one of its supplies three hundred billion dollars. And the
other one is AMD, which is sort of the big
LaGG a out or the pull man's and Video they
signed away ten percent of their equity to open Ai
as a customer, just so open Ai would buy lots
of its chips, so try and catch up to in
video and that. The final one to keep an eye
on is the fact that a lot of the credit

(03:06):
or the loans are being backed or collateralized by these
same Ai chips, which actually is quite reminiscent of how
Loosens customers used overinflated telecom spectrum licenses back in the day.
Is collateral for the debt? Right?

Speaker 1 (03:20):
Well, what does this mean for investors?

Speaker 2 (03:23):
No doubt that some frothy scigns, and even today you
saw the Bank of England and the IMEF warning people
about the risks of AI. What we don't know is
how much longer this exuberance can continue for and for now,
and this is important. The primary customers of these AI
chips are companies with incredibly strong balance sheets and cash generation,
and that is quite different than two thousand. But we

(03:46):
do need to keep an eye on this head.

Speaker 1 (03:48):
Yeah, interesting stuff, Sam, Thank you very much, appreciate it.
Sam Dickie Fisher Funds.

Speaker 2 (03:52):
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