AI Illusions and Navigating ‘The Money Trap’ with Alok Sama

Rebecca Bellan
Sep 11, 2022 | 26 min

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On today’s episode of Equity, Rebecca Bellan sat down with Alok Sama, a Morgan Stanley veteran and former president and CFO of SoftBank Group International. They discussed the latest Apple tech announcements, Sama’s views on the AI hype cycle, and changes to the technology investment landscape since the dot-com era. He also provided insights from his upcoming memoir, ‘The Money Trap: Lost Illusions Inside the Tech Bubble,’ which goes on sale September 17.

A Brief Background on Alok Sama

Sama cut his teeth at Morgan Stanley before joining SoftBank in 2014, where he worked closely alongside the Japanese conglomerate’s iconic founder Masayoshi Son. Sama helped steer Son’s $32 billion acquisition of the U.K.’s Arm Holdings in 2016 and led SoftBank on the $59 billion merger of Sprint and T-Mobile.

In short, when it comes to surveying the landscape of technology and investment, Sama knows his stuff.

Apple and AI Musings

At Apple’s ‘It’s Glowtime’ event on Monday, the company revealed its iPhone 16 lineup, which will be the first to ship with AI-powered functionality. Those Apple Intelligence features will come out later this year, though, and Sama says the real impact of Apple’s announcements are yet to be seen.

"At the consumer level, [the impact of AI] is very early days," Sama said.

Sama also touched on the sky-high valuations of companies in the AI space — including Nvidia ($3.3 trillion), Anthropic ($18.4 billion), OpenAI ($100+ billion), and xA I($24 billion) — and whether those are evidence of an AI bubble bursting.

Sama says he’s not too worried about it.

"If you look at Nvidia and you look at the way it’s performed, it’s not disconnected with reality in terms of how their revenues and profits are growing," Sama said. "Nvidia trades somewhere in the region of 35 to 40 times forward earnings. That’s not outrageous. Outrageous was Cisco, which was trading at 200 times earnings. If you’d invested in Cisco back in 2000, 24 years later, you’d still be losing money."

Sama also noted that Nvidia’s major customers, the so-called ‘hyperscalers’ (Google Cloud and Microsoft Cloud), are big enough to risk overinvesting in AI rather than underinvesting.

The two also touched on the incestuous and circular nature of investments into the top AI players. Sama pointed to Nvidia and Microsoft investing in OpenAI’s latest round, in which it was valued at over $100 billion, and sketched out a picture of OpenAI spending money on Microsoft Cloud, and Microsoft Cloud spending money on Nvidia chips, and so on.

The Money Trap

Sama delved into points of his book, particularly the psychology of investment hype cycles and the precedent set in Silicon Valley of valuing companies based on their growth potential rather than their actual financial performance. This has led to a culture where investors are more focused on making short-term gains than on creating sustainable businesses.

"The biggest problem is that people have forgotten what it means to be a business," Sama said.

"They’re so focused on the next big thing, the next IPO, the next acquisition, that they’ve lost sight of what’s really important: building a company that can stand on its own two feet."

The Impact of AI on Investment

Sama believes that AI is changing the way people invest in companies. With the rise of automated trading and AI-powered investment platforms, it’s becoming easier for individual investors to participate in the market.

However, this increased accessibility also comes with risks. Sama warns that investors need to be aware of the potential pitfalls of investing in AI-driven companies, including the risk of overvaluation and the lack of transparency in AI decision-making processes.

Conclusion

Sama’s insights offer a unique perspective on the intersection of technology and finance. As AI continues to shape the investment landscape, it’s essential for investors to stay informed about the latest trends and developments.

By understanding the potential risks and opportunities presented by AI, investors can make more informed decisions and build sustainable businesses that will thrive in the long term.

About Rebecca Bellan

Rebecca studied journalism and history at Boston University. She has invested in Ethereum.

You can follow her on Twitter: @rebeccabellann

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