In an interview with ET Now, Wood said that global news flows are heavily influenced by political developments in the US, but the AI sector remains the most interesting narrative for a long time.
“Mr. Trump continues to dominate the news. But in the big picture, Anthropic is the most interesting company to come out of this whole AI saga. But the involvement of the US defense sector reminds me of the Terminator movie. One of the great movies of all time that looks so damn cool. I’m talking about the original Terminator.” Wood said.
The debate surrounding Anthropic has recently intensified amid speculation surrounding its development of advanced AI over regulatory scrutiny and geopolitical implications. While concerns are still growing, the broader conversation has quickly expanded to questions about whether the AI boom that is fueling U.S. technology stocks can bear a reality check.
When asked whether ongoing developments could challenge the dominant philosophy of AI as the US’s equal power, Wood acknowledged that investors are starting to question the big spending by tech giants.
“Well, I think what happened this year is we had a three-year AI capex race that started in early 2023 when the market suddenly focused on AI because of Microsoft’s purchase of ChatGPT,” Wood said.
He explained that the world’s biggest technology companies — often called hyperscalers — have responded to the AI boom with unprecedented increases in capital spending. “Then the hyperscalers responded with this huge capex binge that I think was driven more by negative drivers than positive. Obviously, AI is a huge opportunity, but one important thing is responding to the threats of the hyperscalers. These guys in Silicon Valley are interested, it’s chaos,” he said.
According to Wood, the level of investment has increased significantly. “This year they’re expected to spend $620 billion, that’s just four hyperscales.”
He noted that the market is already beginning to question whether heavy spending will translate into meaningful returns.
“Actually, we’re starting to see the market question the return from capex with the first quarter earnings season. But the key word is start,” Wood said, adding that research will accelerate in the coming months.
Wood believes the big question investors should consider is whether the AI economy will be similar to the Internet boom or something very different.
He said: “The internet economy was about winning. Once Google was in search, Facebook are the best examples. All the extra revenue went to the bottom line. Whereas now AI looks like the aerospace industry – hard capex but not necessarily very profitable.”
Another challenge, according to Wood, is the lack of a clear “killer application” for AI chatbots so far.
“So who actually makes money from these chat boxes? It’s not really clear. What is a chat box killer app? So far I would say that the OpenAI killer app allows kids to cheat on their homework but there is no real killer app.”
However, he pointed out that money laundering is more visible in enterprise markets.
“Where we see evidence of monetization is in the corporate market and that’s Entropy, not OpenAI,” he said.
Anthropic has attracted considerable attention in the technology ecosystem, especially since it was founded by former OpenAI researchers and engineers. The company is increasingly positioning itself as a competitor in the manufacturing AI space.
Wood said the migration of talent in the industry is also significant.
“Anthropic is the most interesting company to come out of this AI story so far and obviously the interesting point about Anthropic is that they came out of OpenAI. So in fact, a lot of the technical talent that created OpenAI left OpenAI.”
Wood added that if given a choice between the two companies from an investment perspective, his preference would be clear.
“If you ask me to invest in Anthropic or OpenAI, I’m definitely investing in Anthropic,” he said.
Beyond individual companies, Wood also believes that the dominance of U.S. equities in global markets may already be on the rise. He noted that US stocks reached a record share of global market capitalization late last year.
“To be precise, the United States reached 67% of the world’s stock market capitalization as measured by the MSCI All-Country Global Index in December 2024. In my view, this is an all-time high,” he said.
According to him, this extraordinary contribution reflects the overwhelming dominance of large technology companies in global indices.
However, Wood warned that big AI spending could change the financial dynamics of these companies.
“A lot of money is going to be lost. And they’re going into very different businesses than free cash flow generating machines. They’re out of their trenches. They’re all congregating in the same area and I don’t think they’re going to be successful in that endeavor,” he said.
Despite his wide-ranging concerns, Wood said that if he had to stock a hyperscalar, his choice would be Alphabet.
While the AI debate has largely focused on technology stocks, Wood also warned that the biggest financial risks may lie elsewhere — particularly in the private markets.
He explained that the software sector is already under pressure as investors question whether artificial intelligence can disrupt traditional software businesses.
“The conceptual issue is, will AI eat software? Now I’m not an expert in this area but it kind of makes sense that AI can eat software,” he said.
Such a shift could have major implications for the private equity industry, which has invested heavily in software companies in recent years.
“The sector that private equity is most invested in is software, and we’re talking about leveraged buyouts of software companies. Doing an LBO in a software company right now is obviously risky for me,” Wood said. Wood said.
He added that the growth of the private credit market is also closely related to private equity financing.
“Seventy percent of private credit is financing private equity. So really private equity and private credit are joined at the hip and that’s where we can get financial compensation damage from this AI story because it’s really a real bubble,” he said.
Interestingly, Wood does not believe that the AI boom itself fits the definition of a classic financial bubble.
“AI is not a classic bubble because most of the capex was funded by cash,” he said.
However, he noted that private credit has increasingly begun to fund AI investments, potentially increasing systemic risks if sentiment changes.
“If it calms down quickly, it could lead to a rapid relaxation of the AI business,” he said.
Wood also highlighted structural features of the U.S. equity market that could increase volatility if investor sentiment changes.
“There is a risk that the US stock market oversells the underlying securities. The reason for this risk is that the US stock market is more retail than the Indian stock market,” he said.
Passive investing has also grown significantly in the United States, he added.
“I believe at least 50% of the market is passive, which means people are buying stocks recklessly because they are in a particular index and that means everyone owns the same stock,” he said.
Combined with algorithmic trading, it can accelerate market changes.
“Fearfully it could open up more than is warranted by the basics,” Wood said.
While the AI narrative continues to dominate global markets, Wood believes the first signs of skepticism are starting to appear. Whether this will lead to widespread reform depends largely on one key factor—whether the massive investment in artificial intelligence ultimately produces meaningful financial returns.
