AI transformation potential does not equal investment returns! Plato Asset Management says the market is confusing two major logics, Nasdaq's plunge is just a "reality test"

According to Jinse Finance APP, David Allen, head of Long/Short Strategies at Plato Investment Management, stated in an interview that Thursday's sell-off in the US stock market was a result of investors confusing the transformative potential of artificial intelligence (AI) with investment return arguments.

On Thursday, the Nasdaq 100 Index plummeted 6.4%, wiping out 2.3 trillion dollars in market capitalization. Investors heavily sold off US tech stocks, triggered by market speculation that congressional Democrats might introduce tighter regulatory measures for the AI industry.

“The major hyperscale cloud service providers have been locked in a life-or-death competition,” he said in the interview. Massive capital expenditures are already approaching a tipping point that the market can bear. “Changes brought about by the midterm elections became the catalyst for this round of sharp downward revisions.”

He stated that rising bond yields are prompting investors to question whether the productivity and profitability dividends promised by AI can actually be realized.

Allen said that Plato has been shorting Australian data center operator NextDC Ltd. for five years, and pointed out the stock dropped by as much as 45% in a single day last month, before bouncing back. He noted that massive capital expenditure and the increasing collapse of social license required to build data centers are common key vulnerabilities for these companies.

Vihari Ross, portfolio manager at Antipodes Partners, said in another interview that rather than signaling structural troubles for AI companies, this sell-off is more of a reality check for the next phase of these investments.

“Implementing these AI projects requires enormous amounts of debt financing—which means the cost of capital and interest rates are critical, while also ensuring sufficient power supply and sustained end-user demand,” she said. “Pricing in a perfectly optimistic outcome for all related companies is simply not rational in itself.”