Why big private investors aren’t worried

The world’s biggest investors often focus on private markets rather than public markets, but given that the AI ​​boom will reshape the economy in the coming decades, they can’t afford not to keep a close eye on what’s happening in the biggest publicly traded tech stocks, and they’re not worried.

While there are concerns about risky overconcentration in the so-called “Magnificent Seven” stocks that dominate the markets. S&P 500Two executives who oversee tens of billions of dollars from investors told CNBC at the Delivering Alpha conference last week that they are optimistic about what’s happening in the U.S. tech sector and the huge sums being invested in artificial intelligence.

Coatue Management founder and portfolio manager Philippe Laffont’s fund manages approximately $70 billion in assets. Securities and Exchange Commission filingsHe said in Delivering Alpha that there was a significant difference between now and the dotcom bubble, calling it the “hyperscaler advantage”; This was a reference to the companies’ capabilities. Alphabet, Microsoft And Amazon Wall Street estimates over $500 billion to be invested in AI bets next year.

General Atlantic Chairman and CEO Bill Ford, whose company manages $118 billion in assets, agrees that the dollar signs currently being discussed in the market are cause for conviction rather than doubt about the largest publicly traded tech stocks. “The people driving change in AI are large public companies and incumbents; they have the advantage,” he said.

While Ford said his firm focuses on private market opportunities and how AI can be applied to portfolio companies (he says investments are made in every one of the 200 companies General Atlantic invests in), he added: “You can’t invest in the private market without understanding what Oracle, what Google, what Microsoft is doing.”

“You can’t make good decisions. Even if we don’t invest in them, we have to be fully aware of what they’re doing,” Ford said.

General Atlantic is investing “pretty aggressively” in AI at its portfolio companies, and Ford said it’s already seeing a “pretty high return,” adding that this is just what he would describe as the “front end” of value opportunities from applying AI in areas like customer service, coding and digital marketing.

Laffont, whose firm invests in both public and private companies, said it’s fair to be concerned about tech stocks rising in value too quickly because that could contradict the bullish outlook for valuations over the long term. That’s because belief in the future in publicly traded stocks doesn’t mean that belief isn’t already priced in, he said. He cited Oracle’s recent stock chart as an example — but did not specifically address concerns about the company that other market skeptics have recently voiced — rising from $150 a share to nearly $350 a share last year, then falling to the $220 range.

Alphabet is a good example of how quickly the big tech stock story tied to AI can change for the better. It wasn’t long ago that Google was left for dead by some investors after the launch of ChatGPT and Google Gemini’s stumbles that it was losing the AI ​​war. Alphabet is currently the best-performing big tech stock of the year. Last week Warren Buffett Berkshire Hathaway announced that he bought shares in the company.

Berkshire Hathaway’s bet on Google is notable given Buffett’s previous comments that he missed the opportunity to invest in the firm. in that 2019 Berkshire meeting, Buffett and Berkshire vice chairman Charlie Munger complained that they “screwed up” by not buying Alphabet sooner because “they could see how well Google ads were working in our own operations and we were just sitting there sucking our fingers.” Shares were around $59 at the time. Shares closed above $276 on Friday, and shares had never traded below $170 in the previous quarter when Berkshire announced portfolio purchases and sales.

Nasdaq It finished last week in the red, its second straight weekly decline since August, but remains below 5% of its all-time high and above its 200-day moving average. Since the Covid low the Nasdaq has gained over 245%.

Laffont said the rapid rise in tech valuations is certainly a phenomenon investors should examine, and that includes a better understanding of not only the bull market but also the naysayers — “Big Short” investor Michael Burry recently claimed that hyperscalers are artificially boosting earnings — but Laffont said the story is very different when you compare 2025 to 2000.

During the dotcom bubble, he said, “all the capital was fueled by IPOs and new companies with pretty questionable business models.” Today, he said, the largest publicly traded tech companies are on track to generate close to $1 trillion in free cash flow annually and are doing so without significant debt.

Laffont said most companies in the market, even those generating free cash flow, do so with “a ton of debt,” leaving them hamstrung when it comes to investment choices.

But the situation is different at top tech companies. “These are investments made by companies that have real boards and return on capital requirements, so I think the system is pretty healthy and the implied leverage in the system is small,” he said. “I’m careful, but I’m asked, ‘Am I worried?’ “If you ask, I’m not yet,” he added.

Wall Street has concerns about Oracle’s balance sheet and debt load as a source of AI investment financing.

Laffont and Ford were not the only investment managers to express positive views on the artificial intelligence theme on CNBC’s “Delivering Alpha.” Mary Callahan Erdoes, CEO of JPMorgan Asset and Wealth Management, said on a separate panel that investors should focus on the opportunities ahead of AI, not whether there is a bubble right now.

Ford said the investments these large public companies are making in each other — the circular AI economy that attracts scrutiny — is a bullish phenomenon and is based on the belief that companies think they have a “really significant opportunity on the other side,” in addition to investments backed by the revenue and earnings they’re currently generating. “They’re all competing for a huge prize, and they need to invest now to win,” Ford said.

“The surprising thing about valuation increases among the ‘Mag 7’ is the earnings tracking,” he said. “This is not two or three times the price-to-earnings ratio. The earnings are there,” Ford said.

Both investors said that even if the cost of computing falls, they do not see a market ultimately going to zero, which would occur in a classic commodity commoditization scenario.

“This is like gasoline to the engine,” Laffont said. “That’s weird, because if I say that P times Q must go to zero as the price goes down, even if P goes to zero, P times Q can go almost to infinity,” he said. an equation This states that as the price of a good decreases, the total income opportunity also decreases. Laffont said he believes the cost of compute tokens will drop significantly, but “the flexibility of what we can do with lower-priced tokens is almost infinite.”

“A lot can be done not only with intelligence and software, but also in cars, humanoids, and machines. I’m quite optimistic that over a long period of time, over a decade, if there was any drop in the price of a token, the total P times Q would still continue to increase strongly.”