Basil: And let me start by this the global AI boom is facing a reality check that's real. After billions of dollars poured into chips, data centers, and AI, uh, infrastructure, a sharp sell-off in technology stocks is raising questions about whether these massive investments will actually pay off with Saudi Arabia and the UAE betting heavily on AI. What does this market correction mean for the Gulf's ambitions? Joining us right now to discuss this is Nick Puckerin, a macro and cross asset analyst and the founder of Coin Bureau. Uh, thank you very much for being with us, Nick.
Nick Puckerin: Thanks for having me, Basil.
Basil: So first of all, I would like to have your opinion on, on what's going on. What's driving this recent global sell-off in AI stocks? What do you think?
Nick Puckerin: I think the broader theme is concerns about whether we're going to see the returns on the massive AI spend. But last week that was catalyzed by a number of events which I can run through. I think it started off with the news that Firmus, which is a large uh AI data center provider in Australia, it had canceled its IPO. It was gonna be the biggest IPO and there was news that another IPO in the UK for Enscale, which is another neo cloud, was delayed and its valuation was cut. We had the news coming from Broadcom CEO who said that he thinks AI investors are investing like casino gamblers that of course spooked the markets. Then we got the news that in China CXNT, which is a memory maker, had developed a new architecture for putting memory inside chips which led to a sell-off in the, uh, South Korean chip makers SK Heinex and Samsung, which of course tanked the KOSPI which is of which those two stocks make up a bigger, the biggest component and then there was news for example that Anthropic had a slowing revenue growth in Q3 which many people were surprised by. And this all came together at the same time when you have all these concerns around the spend and the the cost of debt for all of these hyper scalers and that's what led to this broader sell off, right?
Basil: And and do you think this is all uh making investors perhaps start. Question whether the billions spent on AI infrastructure will actually deliver sufficient returns in the end.
Nick Puckerin: They are, and when you say billions it's trillions. I think next year the projections are that about $1.2 trillion has been committed to AI spend. And a lot of that is borrowed money and some of these hyper scales as well as some of the smaller companies, these neo clouds have been borrowing at rates that are subprime rates for example Korwe for example which is one of the best known neo clouds in the US has got about $50 billion of debt financed at subprime rates and as you saw last week it's uh it's it's spread above treasuries was spiking as well as its CDS spreads which is the cost of insurance of the debt. So these concerns are manifesting in the, the bond yields we see in the CDS prices and the stock prices.
Basil: Mhm. And because I mean uh people with money and funds are starting to worry how exposed are Gulf uh sovereign wealth funds to this market correction actually.
Nick Puckerin: They are quite exposed as we know Abu Dhabi's MGX has got a $49 billion AI fund which is which is bought into a lot of the newer um private sales for a lot of these big labs. There's also, um, for example, I think they're going to invest in Anthropic's latest round about 10 billion with the 30 billion rand it's going through. Um, and then there's also the fact that for example SoftBank, which is one of the biggest AI investors out there in Japan, is now coming to look for more capital to invest again in AI and it's coming straight to the Gulf looking to raise $100 billion from Gulf investors, so they are quite exposed
Basil: and, and with major AI investments from Abu Dhabi's MGX and Saudi Arabia's uh Humane, could the selloff force in your opinion, a rethink of their own strategies?
Nick Puckerin: I think these are very long term investors. I mean, obviously if there's going to be a sell off it's going to lead to a decrease in the value of some of the investments themselves which could impact on what they can invest but given that they are long term investors, especially Abu Dhabi's MGX, there could be an opportunity to potentially buy the dip on some stocks they think are undervalued. Uh, when it comes to humane, it's part of Saudi Arabia's broader strategy of, of investing in AI and diversification for the economy. So therefore I think it won't, it won't cause a massive strategic rethink, it will just be potentially an opportunity for, for dip buying, but I think that their goal is more centered around uh diversification and investing in AI in their economies.
Basil: And if global tech companies actually slow their AI spending, what would that mean for the Gulf's data center ambitions because I mean this is um. Everybody talks about that right now.
Nick Puckerin: Yeah, so if they're slow in their investments, they're slow in the purchase of compute capacity that's going to mean underutilization for a lot of these data centers that have been built. Uh, if a lot of these uh cloud providers stop buying and stop building these data centers that does lead to a slowdown in investment. So they they are exposed and the data center build out here is exposed although on the other hand what I will say is the one, the one you know silver lining to this cloud is if all this talk about data center moratoriums in the US out of the election and they stop allowing uh the build out within. The US and they put these moratoriums on build out in continental US, it could mean other countries could could provide a bit of an opportunity for these hyper scalers to invest in them so that could be the silver cloud to the data center build out here at least
Basil: and and do you think, uh, this correction, uh, can be, as you said, OK, it's it's, it's a buying opportunity as well, right? This is.
Nick Puckerin: Yeah, I mean if you think about most uh tech cycles and most innovation cycles throughout history there's always this kind of overinvestment and this this hype that creates a lot of valuations that seem stretched and you have a correction, you do have a is a bubble but what what emerges from that bubble is a new technological revolution. Think about the dot com bubble and all of the fiber that was laid and how it transformed the way we Think about using the internet today so I think that and and some of the companies out of the dot com bubble, Amazon, Google, etc. I think that there's many of these companies that if you'd held on to it and the long term value of it and the investment would have would have turned out, uh, profitable for you. So I think in this case there could be buying opportunities if you do, if we do have a big rolling over. I don't think it's right now. I think it hasn't rolled over enough, but there will emerge as opportunities from this, right,
Basil: so I think everybody is hoping that this is. Case actually that is just a correction a dip and you know it would be a buying opportunity it's uh an opportunity to actually double down let's say on AI investments but again there's the question is uh if it's a prolonged AI downturn could it threaten uh the region especially let's talk about Saudi Arabia and Saudi Arabia's uh vision 2030 in specific uh how how can that harm this this vision?
Nick Puckerin: Well I'm sure as you know the Kingdom's vision 2030 is is an initiative at diversification away from uh reliance on on on the oil industry right and I think that now they're thinking about other sorts of industries that they can invest in, think about tourism, think about building out all of these cities and bringing investment and I and and AI infrastructure and the AI industry is one of the targets for them so beyond just the actual In share prices and investments that the kingdom's the kingdom's sovereign wealth fund may have invested in, it's a broader economic strategy for Saudi Arabia, so I don't think it's necessarily going to deter them from that goal, right?
Basil: So as an analyst, as an expert at this, um, give me an insight into what you're looking for, uh, what investors should actually be watching for to determine whether this is kind of a temporary. Uh correction or perhaps a deeper problem with AI evaluations.
Nick Puckerin: So I think there's a lot of stuff coming out this week. For example, today I believe we've got the Meta earnings and then we've got Amazon as well as a few other hyper scales in the next few weeks. Take a look at what their forecast and projections are for the spend in terms of their, uh, their, their commitments to capital over the next quarter. So that's important. Uh, keep an eye on the debt markets as well. Keep an eye on what these hyper scales and neo clouds are raising at and and what uh the credit spreads are trading at because that gives you gives you an indication of what bond market investors are telling the broader public and then I think the two biggest things to watch as well are are what's happening with um anthropic and uh OpenAI because these are coming to market potentially to IPO I think anthropic uh towards the end of November. And there's many people who are going to be scrutinizing their books, their, uh, their accounts to see whether this revenue growth can be sustained, and, and a lot rides on that because it's targeting the biggest IPO in history. So those are the things I would watch in the coming weeks and months to assess where we go from here.
Basil: Absolutely perfect. Thank you as always, uh, great to talk to you. Thank you for coming back on Fintech TV.
Nick Puckerin: My pleasure. Thank you.
