"AI Investment Cycle in Latter Phase... Focus Should Shift to Capital Providers, Not Big Tech"

The Key Factors: "Rising Interest Rates" and "Inflation"
Capital Providers, Including Financial Institutions and Pension Funds, May Halt Investments
Keep an Eye on the U.S. 10-Year Treasury Yield at 5%

There is analysis suggesting that the global artificial intelligence (AI) investment cycle has entered its latter phase, and that attention should now focus on whether capital providers such as financial institutions will continue investing, rather than the big tech companies.

On the 18th, KOSPI and other indices are displayed on the status board of Hana Bank dealing room in Jung-gu, Seoul. Photo by Yonhap News.

On the 18th, Eun-taek Lee, Executive Director at KB Securities, expressed this perspective at a press conference held at the Korea Exchange, saying, "Even if big tech firms cannot stop investing in AI, capital providers still can."

Lee stated, "Since early last month, when AI and semiconductor stocks began to decline, doubts about the sustainability of AI facility investment have grown," adding, "I believe concerns over big tech halting their investments are excessive. The likelihood is low." He continued, "However, I think capital providers such as banks, venture capital (VC) firms, sovereign wealth funds, and pension funds could halt their investments."

Lee estimated that the AI investment split between big tech and capital providers is roughly 60-to-40. He noted, "Looking back, there has never been a case where a bubble burst because corporations were the first to stop investing," and added, "On the other hand, in terms of investment profit and loss structure, unlike big tech firms, capital providers face the risk of principal loss and may choose to pull back."

Lee pointed out that potential factors that could cause capital providers to withdraw funds include an economic slowdown, a decline in corporate profits, and rising interest rates, emphasizing that among these, rising interest rates are the most significant.

He explained, "Capital providers typically respond to rising interest rates before reacting to an economic slowdown. Therefore, if interest rates rise, collapse can occur." He continued, "The common thread across the three major cases—the Great Depression of the 1930s, the stagflation of the 1970s, and the (dot-com) bubble burst in the 2000s—was a sustained upward trend in interest rates." He added, "If we consider the likelihood of interest rates continuing to rise, it would require the Middle East crisis to escalate into an all-out war and a disastrous situation, but that probability is not high."

However, he predicted inflation would be a significant variable. Lee said, "Inflation is like a checkmate move in the game of go. If prices rise, authorities are compelled to tighten policy," and noted, "Looking at the three previous instances of bubble bursting, a sharp spike in prices formed the underlying basis."

Lee also singled out the 10-year government bond yield as an important indicator to monitor alongside inflation. He said, "If this yield surpasses 5%, capital providers could shift toward securing safe returns. When rates rise, massive capital flows will change direction."

This content was produced with the assistance of AI translation services.