Morgan Stanley CIO Expresses Concern Over AI-Driven Market

Shalett warned that if the generative AI capital expenditure (CAPEX) story falters, "it won't be a clean ending." She referred to the stock price plunge experienced by Cisco during the dot-com bubble burst in 2000 as the "Cisco moment," predicting that such a phase is more likely to occur within the next 24 months rather than within the last nine.

Based on the actual scale of spending, she also stated that the cycle is currently in a stage close to the "seventh inning."

At the center of these concerns are recent massive deals accompanying the expansion of data center infrastructure. Shalett specifically noted that Nvidia, the world's most valuable company by market capitalization (exceeding $4.5 trillion), is at the heart of these transactions. In September, Nvidia invested $100 billion in OpenAI and further promised $5 billion in funding to Intel.

Concerns over "circular financing" reported by Fortune journalist Jeremy Kahn in late September align with Shalett's observations. Regarding a structure where Nvidia's funds are recycled within the AI industry, she stated, "Nvidia, at the center, is starting to do what the villains in the final act often do." Specifically, she explained that corporate relationships have become intricately intertwined, with OpenAI receiving funding from Microsoft while also receiving investment from Nvidia, and further entering into contracts with Oracle and AMD.

Shalett highlighted the data center agreement between OpenAI and Oracle as a particular point of concern, noting that it is "entirely based on debt financing." Additionally, OpenAI has entered into a chip purchase agreement with AMD, which includes the possibility of acquiring up to 10% of AMD's equity. She stated that this is creating a structure where AMD, a primary competitor to Nvidia, could gain indirect benefits through OpenAI.