Why big private investors aren’t worried

The biggest investors in the world often have a greater focus on the private than public markets, but with the artificial intelligence boom set to reshape the economy for decades to come, they can’t afford to not pay close attention to what’s taking place with the largest publicly traded tech stocks, and they are not worried.

Amid fears about risky over-concentration in the so-called “Magnificent Seven” stocks that dominate the S&P 500, and related fears of an AI bubble, two managers overseeing tens of billions of dollars from investors told CNBC at its Delivering Alpha conference last week they remain bullish on what’s taking place in the U.S. tech sector and the huge sums being invested in AI.

Coatue Management founder and portfolio manager Philippe Laffont, whose fund manages roughly $70 billion in assets, according to a Securities and Exchange Commission filing, said at Delivering Alpha that there is an important difference between now and the dotcom bubble, what he called the “hyper-scaler advantage,” a reference to the ability of companies including Alphabet, Microsoft and Amazon to invest what Wall Street estimates may reach over $500 billion in AI bets next year.

General Atlantic Chairman and CEO Bill Ford, whose firm manages $118 billion in assets, agreed that the dollar signs currently being discussed in the market are a reason for conviction about the biggest public tech stocks rather than doubts. “The people driving change in AI are the large public companies and the incumbents, they have the advantage,” he said.

Even as Ford said his firm remains focused on the private market opportunities and how AI can be applied to its portfolio companies — investments he says are being made across every one of the 200 companies in which General Atlantic is invested — he added, “You cant invest in the private market without an understanding of what Oracle, what Google, what Microsoft is doing.”

“You can’t make good decisions. We have to be fully aware of what they are doing even if we are not investing in them,” Ford said.

General Atlantic has been “pretty aggressively” investing across its portfolio companies in AI and Ford said it has already seen a “pretty high payback,” and he added that is in what he would describe as just the “front edge” of the value opportunities from apply AI, in areas like customer care, coding and digital marketing.

Laffont, whose firm invests in both public and private companies, said it is fair to have concerns about tech stocks that increase in value very quickly because that can be at odds with a bullish view of valuations over the longer term. That’s because with publicly traded stocks, he said, belief in the future doesn’t necessarily mean that belief hasn’t already been priced in. He cited Oracle’s recent stock chart as an example — though he did not specifically indicate concern about the company which other market skeptics have recently voiced — which over the past year rose from $150 per share to near $350 per share, before falling back into the $220-range.

Alphabet is a good example of how quickly the big tech stock story tied to AI can change, in its case for the better. It was not long ago that Google had been left for dead by some investors betting in the wake of ChatGPT’s debut and Google Gemini’s stumbles that it had lost the AI war. Alphabet is now the best- performing big tech stock of the year. Last week, Warren Buffett’s Berkshire Hathaway revealed it had taken a stake in the company.

Berkshire Hathaway’s bet on Google is notable given Buffett’s previous comments that he had missed the opportunity to invest in the firm. At the 2019 Berkshire meeting, Buffett and Berkshire vice chairman Charlie Munger lamented that they had “screwed up” by not buying Alphabet earlier because they “could see in our own operations how well that Google advertising was working. And we just sat there sucking our thumbs.” At that time, the shares were going for around $59. On Friday, shares closed at over $276 and over the prior quarter — for which Berkshire just released its portfolio buys and sells — shares had never traded below $170.

The Nasdaq ended last week in the red, its second consecutive weekly decline since August, but remains less than 5% below its all-time high and above its 200-day moving average. Since its Covid low, the Nasdaq has gained over 245%.

Laffont said the rapid rise in tech valuations is definitely a phenomenon that investors need to study, and that includes greater understanding of not just the bull case but the naysayers — “Big Short” investor Michael Burry recently alleged that the hyper-scalers are artificially boosting earnings — but Laffont said when you compare 2025 to 2000, the story is very different.

During the dotcom bubble, he said, “all the capital was fueled by IPOs and new companies with fairly dubious business models,” he said. Today, he said, the biggest publicly traded tech companies are on their way to producing close to $1 trillion of free cash flow annually, and doing so with no significant debt.

Most companies in the market, even the ones producing free cash flow are doing so “with a ton of debt,” Laffont said, leaving them encumbered when it comes to investment choices.

But the top tech companies are a different story. “It’s investments made by companies with real boards and return on capital requirements, so I think the system is pretty healthy and the implied leverage in the system is small,” he said. “I’m watchful, but if you ask me, ‘Am I worried?’ I’m not yet,” he added.

Wall Street does have concerns about Oracle’s balance sheet and debt load as a source of AI investment financing.

Laffont and Ford weren’t the only investment executives at CNBC’s “Delivering Alpha” expressing bullishness about the AI theme. Mary Callahan Erdoes, CEO at JPMorgan Asset and Wealth Management, said on a separate panel that investors should be focused on opportunities ahead with artificial intelligence rather than whether there’s a bubble currently.

Ford said the investments being made by these large public companies across each other — the so-called circular AI economy which has attracted scrutiny — is a phenomenon that he sees as being bullish and based on the belief the companies think they have a “real significant opportunity at the other end,” on top of investments being supported by revenue and earnings they are generating now. “They are all fighting for a very big prize,” Ford said, “and need to invest now to win,” he added. 

“The amazing thing about valuation increases among the ‘Mag 7’ is the earnings follow-through,” he said. “This is not double to triple price-to-earnings ratio. The earnings are there,” Ford said.

Both investors said even as the cost of compute comes down, they do not see a market that goes to zero as a result, which might occur in a classic goods commoditization scenario.

“It’s like gasoline to an engine,” Laffont said. “It’s strange, because if I say as the price goes down, P times Q should go to zero, even if P goes to zero, P times Q can go to near infinity,” he said, referring to an equation that dictates as the price of a good declines, so does the total revenue opportunity. Laffont said he does belief the cost of a compute token will go down dramatically, but what he called the “elasticity of the things we can do with lower-priced tokens are almost infinite.”

“So many things can be done, not just with intelligence and software but in cars and humanoids and machines. I’m sort of fairly optimistic that for long period, a decade-plus, with any decrease in the price of a token, overall P times Q will still be growing strongly.”