In the exclusive nature camp of Wall Street, everyone is afraid of AI

Investment managers, economists and other financial professionals have come to this famous fishing site in the heart of Maine’s wilds every year, swapping their suits for T-shirts and sweatpants. As they drained their glasses of wine in the wood-roofed dining room, they listened to Norton, mesmerized. The veteran tech investor explained how chip design will one day become so complex and efficient that engineers will actually move molecules.

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Then a hand was raised: “All this progress in the field of artificial intelligence is costing American companies trillions of dollars. Will this investment yield a return?”

“I can’t answer that question, and neither can Wall Street,” said Norton, who was standing in the corner of the room with models of fish and birds attached to the walls behind him. “I still don’t know. It worries me.”

You wouldn’t guess it from looking at the major stock indexes or Micron’s stock price, but behind closed doors, Wall Street fears about artificial intelligence are reaching new heights.

Not keeping up

The technology giants, who once enjoyed balance sheets that were considered invulnerable, are now spending more cash than they are bringing in. The expenses that do not appear on the balance sheets are even greater. Expectations for revenue growth are skyrocketing, and companies like OpenAI are struggling to keep up. Nvidia, the company with the highest market capitalization in the world, is cultivating an entirely new class of assets to continue to pump demand for chips.

The paradox of betting on artificial intelligence – where investors question the enthusiasm around it and at the same time continue to pour money into it – was felt in every corner of the Kotok camp. This is an invitation-only weekend event that brings together professionals from all over the world of finance. While sailing in a canoe, over a cup of coffee and around the poker table, the participants, or “campers” as they are called locally, debated whether the massive spending spree on artificial intelligence will indeed yield the expected revenues, or whether the market is expected to suffer.

No one really knows. But none of the players is ready to take the chips off the table either.

“The scale of spending has reached such extraordinary levels that we have no choice but to stand with our mouths open and wonder how this will all end,” said Peter Bokwer, chief investment officer at One Point BFG Wealth Partners and a long-time participant in the Kotok camp. And in the same breath he added: “There’s a party going on. Nobody wants to leave early.”

Uninhibited discourse

One evening a frank discussion developed around the poker table. There is no doubt that too much money has been invested in data centers, argued one of the trainees. But isn’t that what always happens when new and significant technology arrives? Look at the Internet or the railroads, another argued: in each case there was first a tremendous enthusiasm, and only later did it become clear who were the winners and who were the losers.

And what about Leopold Aschenbrenner, whose AI-focused hedge fund Situational Awareness nearly collapsed following a selloff in some of the sector’s stocks just days before the Kotok meeting? He’s a boy, some of the players shrugged. An inexperienced investor who learned one of the most basic and painful lessons in the market: borrow too much, get burned.

Some of the campers later expressed concern in private conversations that the collapse of Aschenbrenner’s fund was indicative of a much more serious problem, according to camp organizer and longtime investment manager David Kotok. Perhaps this is the same kind of “fix” that JPMorgan Chase CEO Jamie Dimon warned against when talking about private credit: one problem that indicates more problems.

The meeting is designed precisely for ongoing discussions and firm opinions that are expressed without restraint. About 25 years ago Kotok began bringing a group of market experts to this tiny town in Maine. Since then, finance people, policy makers and experts from a variety of fields have been hosted at the meeting, many of them personally selected by Kotok. One of the trainees calls the place “the Walden forests of Wall Street”. Or simply: “nerd camp”.

At the lakeside resort, which some campers compare to Jackson Hole or Davos, participants say things they wouldn’t necessarily write in analyst reviews or announce on CNBC. The meeting is conducted according to the Chatham House rule, according to which the participants are allowed to reveal the topics of the discussions, but not the identity of the speakers or the organizations to which they belong. (The quotes given in the article were said in conversations where the speakers agreed to be identified).

Most of the regular participants have accumulated decades of experience in the markets. They well remember previous asset bubbles, from the fiber optic investment boom during the dot-com bubble to the celebration of mortgage-backed securities that sowed the seeds of the global financial crisis.

And sometimes, the conversations in the camp turn out to be prophetic. Fifteen years ago, the campers sat down to the annual lobster dinner, when it was announced that S&P had downgraded the credit rating of US government bonds, placing them lower than the government bonds of more than a dozen other countries.

That evening the participants whispered that this was just the beginning, and that the financial situation of the USA was expected to deteriorate even more. Back to the present: this week the gross national debt of the USA crossed the 40 trillion dollar mark for the first time.

This year, none of the participants could say whether the giant’s investments in technology, on which the bullish market rests, will indeed yield the results that investors are hoping for. Last summer, concerns about artificial intelligence were much milder, according to Adam Phillips, director of investments at EP Wealth Advisors.

But a lot has changed since then: the bond market is struggling to absorb a wave of AI-related debt amounting to a quarter of a trillion dollars. The growth rate of the US economy is also increasingly dependent on the investment boom in the field.

According to Phillips, these developments have drawn much more attention to the question of when AI spending will start to pay off. “Unfortunately, we are all in the same boat. The experts don’t know,” he said. “It’s quite disturbing.”

pay the price

That’s not to say these Wall Street veterans are bearish about AI’s usefulness as a technology. Over lunch, over plates of fried fish, or sitting on the back porch after dark, the campers swapped advice on ways they incorporate AI agents into their work routines.

One of them uses the tool to produce a daily overview of overnight market developments. Then he entered a strongly worded email into the system and asked the agent if he would regret sending it. The answer was yes, and he decided not to send it.

None of them came here to promote their investments. But when pressed, the trainees admitted that the jitters in the markets are starting to affect them too, at least to some extent. Some have made adjustments to their investment portfolios and moved from overexposure to stocks of large technology companies to a more neutral position. Others have hinted that it’s time to diversify investments and expand them into other sectors of the S&P 500. But none of them are really betting against the AI ​​boom.

According to Bukvar, experience is one of the reasons for this. Members of this group remember quite a few other “Cassandras” who were written off after prematurely predicting that the market had peaked. Most participants held their doubts about artificial intelligence with one hand, and pressed the “buy” button with the other.

After all, in many ways betting on tech stocks is the only game in town.

“Nobody wants to be left behind,” Norton said in an interview after the panel he participated in. “In every technological revolution we’ve been through, everyone jumps in. And when the music stops, someone will have to pay the price.”