AI Safety and Rising Yields

SPEAKER_1 (0:02)

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Tom Keene (0:27)

George Noble needs no introduction.

He and a guy named Mobius basically took Sir John Templeton's path-breaking value large cap international investment and said, let's make this dance. What was it like way back at Fidelity, like the first couple months of Fidelity International? You had to justify your existence.

George Noble (0:49)

So my mentor, Peter Lynch, had insatiable curiosity and he needed a foreign stock jock. So they came to me in early 84 and they said, have you ever been abroad? I said, I've been to Tijuana, been to Montreal, where you need to know. So they sent me off to here and they said, get your glove because end of the year of 84, we're going to start our first foreign stock fund. I was it.

So, you know, but it was one of the things with Ned Johnson, they gave the opportunity, three, into the fire and let's see what you got.

Tom Keene (1:21)

The fire right now is AI. You are scathing. Our listeners and viewers that own this stuff in their retirement plans, at Fidelity, everywhere else as well, what should be their action into the autumn?

George Noble (1:37)

Why am I not surprised by the question? We spoke about a couple of months ago when I was last on. Things have gone from bad to worse.

And let's just step back for a second because there's so much day-to-day volatility. This announcement, that release, et cetera, et cetera. Most recently, all this stuff over the weekend. I mean, Tom, Paul, think about this. You have a commodity that's deflating at record speed with debt that's being built up at record speed. Like, what could possibly go wrong? Okay, so every day, every week, there's another model that comes out, and then the Chinese could do it for 95% off. And now there's noises about, you know, Trump maybe is going to ban Chinese AI or whatever. As we said last time, I think this is going to be the biggest misallocation of capital in history.

And when people say, is it worse than.com, not as bad as.com, history rhymes, it doesn't repeat. I read something interesting the other day, not an original thought, but I thought this fellow put it brilliantly. He said, you know, this AI thing, it's kind of reminds him, it's kind of like if you took.com and merged it with the great financial crisis, i.e. all the Ponzi finance schemes of housing, it's kind of what you got.

Paul Sweeney (2:50)

Oh boy. So what aren't you buying here, I guess, in terms of the concept of AI?

One, I mean, I think we're all kind of going to say, but we're trying to everyday learn a little bit more what this means, what it actually is. To me, it just feels like what we're talking about five years ago, which was big data, and it's just another term. But I'm being told, no, no, no, this is a new way of computing. This is a new way of processing information, and it requires a tremendous amount of computing power, which requires a tremendous amount of capital, and that's kind of what you got to get your head around. You're not buying that?

George Noble (3:26)

No.

We all use AI. I use AI. People savagely attacked me on Substack and X because, oh, you used AI. Yeah, I like AI, okay? It doesn't mean it's a good investment. It's like Peter always talk about difference between the product and the stock, all right? The question is, is AI, if you do reverse engineer the math, and you look at the trillions are spending on capex, and just reverse engineer and say, okay, how much gross profits do they need to justify that? In turn, what are the implied revenues that you need to justify that?

Liars figure, but figures don't lie. And so the question is, is there going to be an acceptable return on capital, all those trillions of dollars are being spent, or is this just going to be $100 billion TAM, and you're going to end up with a commodity business, and there's going to be no margins? That's the issue. One last point I want to say on this, Peter Barres, a bank credit analyst, made a really good observation a couple months ago, liken it to .com. He said, you know, the folks in 99 who were all bullish on the internet, they were right. Internet traffic went up like 43% compound in the next 25 years. It went up like 25 million percent. Didn't stop Nortel from going bankrupt and Global Cross from going bankrupt. These are two different things.