Chance of AI market correction is 'pretty high,' ex-Meta exec Nick Clegg says

Nick Clegg, a former executive at Meta and a notable British politician, expressed concerns on Wednesday regarding the likelihood of a market correction in the artificial intelligence (AI) sector, labeling it as 'pretty high.' During an interview with CNBC's Arjun Kharpal for 'Squawk Box Europe,' Clegg highlighted the astonishing valuations that have emerged in the AI boom, suggesting that the current market dynamics might not be sustainable. Clegg emphasized the frenetic pace of deal-making within the industry, stating, 'There's just absolute spasm of almost daily, hourly, deal making.' He cautioned that this rapid expansion could lead to a significant correction in the market, especially if major tech companies—referred to as hyperscalers—struggle to recover their massive investments in infrastructure like data centers. He pointed out that the industry is built on a foundational paradigm centered around large language models and the pursuit of artificial superintelligence, which is often viewed as the 'holy grail' of AI. While many tech leaders, including Meta's CEO Mark Zuckerberg and SoftBank's Masayoshi Son, advocate for the potential of superintelligence, Clegg urged caution, stating, 'I think there are certain limits to that probabilistic AI technology, which means that it won't perhaps be quite as all singing and all dancing as people suggest.' Despite his reservations, Clegg acknowledged that AI technology will continue to evolve and significantly impact various industries. He drew parallels between the current AI landscape and previous tech bubbles, noting that companies like Meta, Amazon, and Google successfully navigated downturns in the past. Clegg's observations resonate with other investors who also perceive an emerging bubble in AI, yet they remain confident in the technology's long-term viability. Jeff Bezos echoed similar sentiments earlier this month, asserting that while the AI sector may be experiencing an 'industrial bubble,' the technology itself is transformative. Clegg pointed out that, despite the hype surrounding rapid adoption of AI, historical trends suggest that societal integration of new technologies often takes time, stating, 'It took 20 years for all of us to get onto desktop computing after desktop computing was technologically feasible.' He concluded by urging a cautious approach to the pace of AI adoption, which may vary significantly across different sectors and regions.