Episode summary
Why the AI Bubble Will Pop Before the Fundamental Cycle Turns | Ben Inker | GMO
Monetary Matters
· · Hosts: George Noble, Jack Farley · Guests: Ben Inker
Summary
Ben Inker argues that AI looks like a classic transformational-tech bubble, and that the likely trigger is not just disappointment in fundamentals but a flood of equity supply. He says the upcoming IPOs and staged unlocks of SpaceX, Anthropic, and OpenAI could create the largest wave of new market cap ever seen in a 12-month period, forcing investors to absorb a level of stock supply that the market is less and less equipped to handle.
He links that argument to market structure: passive ownership, concentrated indexes, and more cautious active managers make prices less elastic when new shares need to be sold. Inker says that in past tech cycles, especially 1999–2000 and 2021, heavy issuance preceded weak markets, and he thinks the same mechanism could push the market down 35% to 50% if AI demand cools and data-center spending proves excessive.
He also warns that the risk is not only equity. AI buildout is starting to crowd into private credit and lending markets, while higher rates are squeezing housing, autos, and other capital-dependent sectors. His preferred allocations remain quality and resources, with a bias toward cheaper non-U.S. stocks rather than making portfolios a single bet on AI.
Key takeaways
- Ben Inker says the AI bubble is likely to pop first because equity supply, not just weaker demand, is about to surge through IPOs and shareholder unlocks.
- Inker expects SpaceX, Anthropic, and OpenAI listings to create an unprecedented supply shock, with 6% of U.S. market cap via IPOs implying materially weaker market returns.
- He argues the market is less able to absorb new supply because passive funds, concentrated benchmarks, and risk-managed active managers are less willing to sell into strength.
- Inker says a serious AI demand reversal could trigger 35% to 50% downside, with the most AI-linked names and single-line businesses hit hardest.
- He favors quality and resources, and says cheaper non-U.S. equities look better than paying up for crowded U.S. growth stocks.
Notable quotes
“In general, the market does about 4% worse per percent of market cap that comes in in an IPO in a given year”
“we will see companies on the equity side go bust. We will see a problem for the hyperscalers where their return on investment turned out to be lousy”
“the largest IPOs in history. And if you had this cliff, you know, 180day everybody can sell event, you know, that would have been incredibly difficult for the market to handle”
“if we are seeing 6% coming in, you know that's 24% worse than normal”
“That is a minus 35 to 50% in the market”
How the episode opens
In general, the market does about 4% worse per percent of market cap that comes in in an IPO in a given year. So, if we are seeing 6% coming in, that's 24% worse than normal. If we're all short of compute, then sure, I'm going to pay for a 5-year-old GPU that is less energy efficient.
But man, if now the world is suddenly a wash in compute, we will have massive defaults on the credit side, we will see companies on the equity side go bust. We will see a problem for the hyperscalers where their return on investment turned out to be lousy. And is that a minus 18% in the market?
No. Right? That is a minus 35 to 50% in the market.
This episode is brought to you by Sarma Partners, who manages a return to tangibles ETF, Lens, ticker Lens, the Sarma thematic ETF built for a return to tangibles. Learn more at surmiaetf.com and see the show notes for disclosures. Let's get into it. Hello and welcome to Other People's Money. I am joined today by Ben Inker, co-head of asset allocation at GMO, which manages over $80 billion today. Ben, thank you for joining me today.
Thanks so much for having me, Max.
I want to start out with the big call that you recently made in your Q3 quarterly letter, specifically that you think that equity supply is the catalyst that will bring down the AI bubble and that you expect that catalyst to play out in the next 12 to 18 months. But what is it that you're seeing? One, that has you saying AI is a bubble, and two, talk to me about equity supply that we've already seen and why you're expecting more of it to weigh on the market.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai bubble
- equity issuance
- ipo wave math
- credit risk spillovers
- ai overbuild
Companies and tickers mentioned
- GMO
- SpaceX
- Anthropic
- OpenAI
Watch the episode
Watch “Why the AI Bubble Will Pop Before the Fundamental Cycle Turns | Ben Inker | GMO” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Monetary Matters, this episode and its artwork belong to Jack Farley. Octagon is not affiliated with the show; this page is an independent summary.
