Broadcom CEO Likens Many AI Investors to Casino Gamblers

(Bloomberg) -- The AI boom has attracted investors whose strategies resemble those of gamblers, Broadcom Inc. Chief Executive Officer Hock Tan said, suggesting some of them have little understanding of what they're betting on.

Tan, one of the chip industry's most prominent figures, on Monday shared his frank views on the AI industry and the uncertainty that accompanied its spectacular rise. The head of Broadcom, which designs some of the components integral to the global data center buildout, also criticized whether businesses were wasting money on AI initiatives and questioned the longer-term economics of money-losing AI labs.

But he homed in in particular on the rush to invest in a technology many improperly understood — particularly when it comes to large language models on the so-called technology frontier.

"A lot of investors have no clue what they are investing in," the head of the American chipmaker said at an event in Singapore. They "set very extreme expectations only to find out that it's almost like they are in a casino."

With AI companies such as ChatGPT-maker OpenAI reporting billions of dollars in losses, the industry is yet to find a sustainable business model for services whose production requires massive investments in advanced chips, data centers and model development. Tan said that OpenAI reaching annualized revenue of $50 billion in September points to a viable business model but offers little guarantee on long-term profitability.

"For now it's still losing money because they're spending a lot on training," Tan said. "So frankly, it doesn't tell anything at this point except that there is a lot of potential revenue growth out of providing frontier generative AI models."

Tan also warned that insufficient capital could become the next constraint on the industry's growth. Australian data center company Firmus Grid Ltd., backed by Nvidia Corp., withdrew its planned $5.5 billion initial public offering last week in a sign investors are growing increasingly skeptical of AI infrastructure companies' valuations that are heavily based on future revenue streams.

Before Tan took the stage, DBS Group Holdings Ltd. CEO Tan Su Shan said the market is repricing the risks on AI financing following heavy investment.