Two more years of AI-powered bull market, says Deepwater's Gene Munster

Key Concepts:

• AI investment, Recession impact on AI, AI hardware spending, Hyperscalers, Artificial General Intelligence (AGI), Deep Sea, Scaling Laws, Mag Seven, CapEx, Generative AI.

Alibaba's AI Investment and Market Concerns

• Alibaba plans to invest over $52 billion in AI over the next three years.
• Gene Munster expresses concern for AI investors due to potential recession, but not due to bubble concerns.

Hyperscalers' AI Hardware Infrastructure Buildout

• Alibaba made bullish comments about AI hardware infrastructure a month prior.
• Hyperscalers accelerated growth expectations from 20% to over 40% at the end of January.
• Micron raised guidance by just under 4% for the calendar year.

The Race to Artificial General Intelligence (AGI)

• The AI race is not just about hardware for current chatbots but about achieving AGI.
• AGI is estimated to be three years away.
• Hyperscalers are focused on AGI due to the potential for exponential value and a "winner take most" scenario.
• This long-term goal drives significant spending from the "Mag Seven" on AI hardware.

AGI Timeline and Potential Recession Impact

• The timeline to AGI seems long in the generative AI landscape.
• A recession could impact AI stocks, potentially causing them to decline.
• Historically, recessions have been catalysts for bursting bubbles, including the Tronics bubble in the 60s and 70s.
• Hardware spending by hyperscalers might face some cuts during a recession, but it's likely to be among the last areas to be reduced.
• Hyperscalers view AI investment as crucial to avoid future irrelevance.

Deep Sea and Alternative AI Models

• Deep Sea and Ant Financial's use of chips from Baba and Huawei to train AI models with comparable results to Nvidia chips (at 20% less cost) are discussed.
• Hyperscalers were likely aware of Deep Sea before its public release but continued to ramp up AI hardware spending.
• The hyperscalers' continued investment suggests they believe in the importance of scaling laws for achieving general intelligence.
• Deep Sea is considered a powerful use case for "tier two" AI applications.
• The significant spending is focused on being at the "front edge" of AI development.

Conclusion

The AI market is driven by the long-term goal of achieving AGI, prompting significant investment from hyperscalers. While a recession could impact AI stocks and potentially lead to some cuts in hardware spending, the existential risk of falling behind in the AI race is expected to protect CapEx spending on AI hardware to a significant extent. Alternative AI models like Deep Sea are acknowledged, but hyperscalers seem to prioritize the scaling laws necessary for achieving AGI, justifying their continued investment in high-end AI infrastructure.