AI Stocks: Fundamentals vs. Fear, Says Mandeep Singh

The AI market is experiencing a period of flux, with investors grappling with high valuations and shifting sentiment. Mandeep Singh, Global Head of Technology Research at Bloomberg Intelligence, joined the discussion to unpack the current dynamics, suggesting that despite the volatility, the core fundamentals driving AI adoption remain robust.

AI Market Drivers: Fundamentals vs. Fear

Singh identified that much of the current market nervousness stems from investor positioning and valuation concerns, rather than a fundamental change in the demand for AI. He noted that while some sectors within tech have seen parabolic growth, leading to pullbacks, the underlying desire to consume AI capacity and deploy advanced functionalities is undiminished.

The conversation touched upon the increasing adoption of open-weight models, such as LLaMA 3, which offer a more cost-effective alternative to proprietary frontier models. Singh pointed out that companies like Cursor, which is backed by xAI and SpaceX, are exploring these cheaper options. He stated, "Everyone wants to use LLMs. It's just that they were expensive. That's why we had concerns around memory pricing and now we are talking about open source adoption. But I don't think fundamentally anything has changed."

The full discussion can be found on Bloomberg Podcast's YouTube channel.

Concerns Over Chinese AI Models and Alphabet's Gemini Delay

The discussion also addressed the emergence of new AI models from China, drawing parallels to past anxieties that similar developments could disrupt the market. However, Singh highlighted that even with the release of models like DeepSeek, companies such as Anthropic have demonstrated significant growth, indicating that the overall AI sector is expanding.

A notable point of discussion was the reported delay in the launch of Alphabet Inc.'s (NASDAQ:GOOGL) Gemini model. Singh commented on the rapid pace of AI development, noting that any delay can be a setback when competitors are releasing attention-grabbing new features. "For a frontier model company like Alphabet, that has a lot going for them in terms of the chip side and the cloud business, a delay of the model is certainly a setback," he said. He added that while he expects Alphabet to release something soon, such delays are critical for hyperscalers who must remain at the forefront of AI innovation.

Investor Outlook and Market Stability

When asked about whether investors should reconsider their AI investments amid the current market conditions, Singh advised a measured approach. "I think you just got to ride out these volatile phases," he suggested. He emphasized that while there might be shifts in specific areas, such as memory pricing or potential approvals for new chip usages, the demand for LLMs and the underlying need to deploy them for inference remains strong.

Singh concluded with a reassuring outlook for the AI sector, stating that the fundamental demand for AI capabilities is solid, as evidenced by the revenue run rates and backlogs of leading companies. He anticipates that upcoming earnings reports from hyperscalers will provide further clarity on their capital expenditure guidance and the sustained demand for AI infrastructure.