There’s a lot of AI angst this week

Good morning, wonderful people. We kick off the workweek with the feeling that a bunch of stories are balanced on a knife’s edge and could literally break either way in the weeks to come. Prime among them: AI, which is set to be one of the biggest stories of the week, in our region and beyond.

Global markets slumped on Friday on worries about the strength of demand for AI. The near-term catalyst was chipmaker Broadcom, whose 2Q revenues fell short of analyst expectations. That sent tech stocks plunging — and the selloff continues this morning in Asia. AI bulls and AI bears alike are licking their chops.

Why there’s so much angst: AI is too expensive even as the model makers lose money hand-over-fist. It’s not only not paying off as fast is many companies think it should — others suggest the technology isn’t getting new features or products to market any faster. And building out the infrastructure the industry needs gets any more affordable if central banks keep rates higher for longer, as seems more and more likely to be the case.

Gulf sovereigns will be keeping a close eye on sentiment as SpaceX pushes ahead this week with the world’s biggest-ever IPO — they all have positions. Ramping up the angst: The transaction includes the largest-ever offering to retail investors, a notoriously skittish bunch, as we suggested last week. What’s more, Elon won’t be getting any help from passive inflows after S&P stuck to its guns and said it wouldn’t relax its rules for inclusion in the S&P 500. The requirements: being listed for 12 or more months, being profitable, and having at least 10% of your shares in free float. SpaceX meets none of them. The share is set to start trading on Friday.

Gulf retail investors will want to tread carefully. While the IPO will offer exposure to big AI and tech themes, “the same factors driving enthusiasm also create risk. At these valuation levels” — the loss-making SpaceX is on track trade at 80-95x trailing revenue — “the investment case remains highly sensitive to liquidity conditions, interest rates and broader market sentiment,” Forex.com analyst Razan Hilal wrote this morning.

Apple rides into the breech this evening with its World Wide Developers Conference. It will be Tim Cook’s last keynote as CEO (he becomes chairman on 1 September), and the tech giant is looking for a do-over on AI after bungling its Apple Intelligence rollout. Pundits seem optimistic that a Siri powered by Google Gemini (with the flexibility to allow savvy users to swap out to Claude and ChatGPT for some tasks) will prove successful. (We goofed last Friday and said WWDC starts on Wednesday — it gets underway tonight at 9pm UAE / 8pm Egypt and Saudi. You can watch the keynote live here.)

It’s all food for thought while you contemplate the week’s to-do list — and wonder what the hell is next after Israel and Iran exchanged blows overnight. –Patrick