Africa-Press – South-Africa. The boom in artificial intelligence stocks is creating a risk of a bubble, which could threaten emerging markets, South Africa’s central bank Governor Lesetja Kganyago said.
Kganyago’s comments come hours after Nvidia delivered a surprisingly strong revenue forecast and pushed back on the idea that the AI industry is in a bubble.
The governor joins Wall Street executives including JPMorgan Chase Vice Chairman Daniel Pinto, who have grown increasingly concerned about the possibility of a bubble forming in AI.
“Despite the promise of AI, there are signs of a bubble inflating,” Kganyago said in a statement on Thursday after the central bank cut its policy rate by 25 basis points.
“With lower rates, and cheap credit even for riskier borrowers, financial markets appear vulnerable to a correction. If that happens, emerging markets could suffer from spillovers.”
For South Africa, the biggest risk is for the rand, one of the most liquid emerging market currencies. Policymakers will worry about a bubble because of its experience from history, said Ashor Sarupen, South Africa’s deputy finance minister, referring to a plunge in the currency following the dotcom crisis.
Nvidia, the world’s most valuable company expects sales of about $65 billion in the January quarter — roughly $3 billion more than analysts predicted.
Nvidia also said that a half-trillion-dollar revenue bonanza due in coming quarters may be even bigger than anticipated.
Meanwhile, the five biggest tech companies are poised to spend an estimated $371 billion this year on the data centers needed to train and run complex models.
By the end of the decade, that infrastructure will require $5.2 trillion to keep up with demand, McKinsey & Co. has said.
“By their very nature, bubbles can’t be predicted,” Kganyago told reporters. “There was a governor who visited South Africa, and he wanted to go to the game reserve, and he said, ‘can you please describe an elephant to me?’ And we told him, ‘when an elephant approaches, you will know it is an elephant.’ And a bubble is almost like that.”
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