Legendary investor Calaman warns of AI bubble: his firm Baupost has refused to invest in OpenAI and Anthropic

Known as the "Boston Buffett," legendary investor Seth Klarman warns that the AI investment boom is showing signs of a bubble. His Baupost Fund refuses to invest in large model companies like OpenAI and Anthropic, instead focusing on undervalued "AI unknowables."
(Background: Ray Dalio, founder of Bridgewater, warns that the AI market shows bubble signs; profitability is the key to bursting.)
(Additional context: Arthur Hayes: rising oil prices, super IPOs in AI, and Trump’s anti-AI rhetoric are three arrows piercing the AI bubble.)

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• Baupost’s AI Investment Strategy
• Three Analogies in the AI Boom
• A Record of Only 5 Loss Years in 44 Years

Legendary investor Seth Klarman, known as the "Boston Buffett," recently issued a warning about the current AI investment frenzy, indicating that market valuations are clearly showing bubble characteristics. His hedge fund Baupost Group, managing nearly $30 billion, is not participating in investments in large language model companies like OpenAI and Anthropic.

In a recent CNBC interview, Klarman pointed out that tech market valuations are "extremely stretched," with investors overly optimistic about distant future prospects to cater to the new era mindset.

Baupost’s AI Investment Strategy

Klarman emphasized that Baupost has not invested in any trillion-parameter large language models because these companies continue to burn massive amounts of money. If their technology falls behind, they face extinction, which does not align with his definition of great companies. He stated, "Great companies don’t need to keep burning cash to prove their value."

Baupost is currently focusing on undervalued "AI unknowables," meaning companies that are unlikely to be disrupted by AI or where AI has little impact on their business. Meanwhile, the team is also examining some credit assets considered "AI losers" by the market, believing there may be mispricing opportunities.

Three Analogies in the AI Boom

Klarman breaks down the current AI investment enthusiasm into three parallel lines:

• AI Winners: Large models and computing power leaders (such as Nvidia, OpenAI, Anthropic)
• AI Losers: Traditional industries and old credit assets
• AI Unknowables: Companies that can remain profitable without relying on AI (such as food, utilities, infrastructure)

He believes capital is rushing into the first category, while the mispricing in the second category actually contains value investing opportunities.

A Record of Only 5 Loss Years in 44 Years

Klarman has managed Baupost for 44 years, during which only 5 years were loss-making, known for strict downside risk protection. When calculated as an annualized return, Baupost’s performance surpasses many large mutual funds and hedge funds. This warning echoes the views of other investment masters like Ray Dalio and Arthur Hayes, indicating that several top investors are beginning to be cautious about the super cycle of AI.