Billionaire investor warns "The faster and higher things go up, the harder they fall" while talking about skyrocketed AI stocks, which will predictably lead to an inflationary economic slowdown

What you need to know

• DoubleLine Capital CEO Jeffrey Gundlach says the current AI wave reminds him of the dot-com era.

• The billionaire investor warns that the current market is grabby and momentum-driven, citing that the rush to invest in AI is a huge risk and will eventually accrue massive losses.

• The CEO attributed that stocks have skyrocketed because of the interest cuts, which have attracted customers to spend rather than save.

Generative AI has undoubtedly taken the world by storm, with more organizations adopting and integrating it into their workflows. The technology has presented new avenues that have been explored to tap into new opportunities like developing software in under 7 minutes. But it has also faced several challenges in equal measure. AI is resource-hungry with several reports indicating that it'll have consumed enough electricity to power a small country for a year by 2027, on top of its high water demand for cooling.

While appearing at Jennifer Ablan's Space on X dubbed Fed Discussion Day, DoubleLine Capital CEO Jeffrey Gundlach indicated that the current AI boom in the world reminds him of the dotcom era in the late 90s (via Business Insider).

The billionaire indicated that the current market is grabby and momentum-driven, he added that he wasn't keen on making impulse investments, further citing that he'd only invest in an equal-weighted index.

Gundlach says he's "not interested in owning seven stocks." Seven stocks essentially refer to companies like Microsoft and NVIDIA, which currently rank highly in the stock market. For context, Microsoft recently dethroned Apple from its crown as the world's most valuable company with $3 trillion in market capitalization.

Market analysts believe this is predominantly because of its early investment in AI. Likewise, NVIDIA was ranked as the most profitable semiconductor chip brand worldwide due to the rise in demand for AI GPUs with Meta and Microsoft as its A-list clients last year.

Gundlach admits that, unlike players in the dotcom era companies like Meta are profitable. In the same breath, the investor warned that "the faster and higher things go up, the harder they fall."

Interestingly, he pointed out that stocks have skyrocketed because of the interest cuts witnessed recently. He added the low rates attached to stocks are attractive, ultimately compelling interested parties to spend rather than save. This explains why companies like Microsoft and Meta are enjoying great profit margins.

Gundlach warns:

"This is no place to be taking fresh, aggressive positions in anything risky. There's a lot of risk in markets that have run this far."

Lastly, the CEO added that the raised price for crude oil will lead to accelerated inflation. In the long run, this will impact stocks, ultimately forcing companies to reduce their value to mitigate the drastic change in the market leading to an inflationary economic slowdown.

Is it the right time to invest in AI?

I feel like a new tech startup specializing in AI advances is popping up daily. Your answer is as good as mine when it comes to the question of whether it's a good time to invest in AI. But really, investing is like flipping a coin. You can either make insane profits or lose everything in the process — there's no middle/safe ground.

But at the very least, we can certainly say that Microsoft is all in with AI. When OpenAI's board decided to oust Sam Altman as the company CEO, speculation hit the air with a lot of concern about where this would leave Microsoft with its 49% stake. While the decision blindsided Microsoft CEO Satya Nadella, he indicated that:

"We were very confident in our own ability. We have all the IP rights and all the capability. I mean, look, if tomorrow OpenAI disappeared, I don’t want any customer of ours to be worried about it, quite honestly, because we have all of the rights to continue the innovation, not just to serve the products. But we can go and just do what we were doing in partnership, ourselves, and so we have the people, we have the compute, we have the data, we have everything."

According to Reddit users on the Artificial subreddit:

"AI is a tool with massive potential, just like the web was. Except the companies that ended up being the biggest successes on the web weren't even in the dotcom bubble, companies like Yahoo were.

And likewise there's going to be A LOT of dud supposedly AI based companies. Every fucking company is claiming to use AI now. So the hype train is real, even if AI has tons of potential itself."

Elsewhere, OpenAI reinstated CEO Sam Altman says GPT-4 "kind of sucks". However, sources with close affiliations to OpenAI revealed the company is gearing up to ship its latest model, GPT-5, later this year during the summer. The model will reportedly make ChatGPT "really good, like materially better."