Bill Gates, co-founder of Microsoft and prominent philanthropist, has issued a stern warning that while Artificial Intelligence (AI) is the “most important thing going on” and will fundamentally reshape the world, the current investment landscape is leading to inflated valuations for many companies that are unlikely to be sustained.
Thus, he predicts a fierce shakeout in the “hyper competitive” sector.
Speaking to CNBC’s Tania Bryer at Abu Dhabi Finance Week, Gates addressed the soaring capital expenditures and the recent volatility in the global markets, emphasizing that AI is only a bubble “in the sense that not all of these valuations will end up going up. Some of them will go down.” He asserted that “a reasonable percentage of those companies won’t be worth that much.”
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Gates’ warning is rooted in the stark divergence between the trading multiples of high-growth, pure-play AI firms and those of more diversified technology leaders. The Price-to-Earnings (P/E) ratio—a key metric comparing a stock price to its earnings per share—highlights this extreme valuation disparity.
For instance, the P/E ratios of stocks like Palantir, at over 400x, and Tesla, well over 200x, signify that investors are pricing in decades of flawless, aggressive growth. This is a dramatic contrast to the S&P 500 average of about 25x. Even AI hardware leader NVIDIA, despite its explosive growth, has a P/E ratio that is significantly lower than Palantir’s, while Gates’ own Microsoft trades at a forward P/E ratio that is actually below its five-year average, suggesting its valuation hasn’t run too far ahead of its diversified earnings base.
This difference underscores Gates’ argument that only the companies with durable competitive advantages—and likely, more grounded valuations—will survive the “hyper competitive” shakeout.
Despite the financial frothiness, Gates remains unequivocally bullish on the long-term, beneficial applications of AI, particularly in global development.
The Microsoft founder affirmed that AI will “fundamentally change lives for the better,” especially in areas prioritized by the Gates Foundation, such as health, education, and agriculture. He stressed that “nobody should have any doubt” about the profound and real benefits of the technology.
“Is this profound and real and is going to provide all of these benefits, including the health, education and agriculture that we’re working on? Absolutely, nobody should have any doubt about that,” he said.
Gates predicted that next year would be big for global health as the foundation begins piloting next-generation AI tools. These initiatives include deploying AI-powered “virtual doctors” that can support all African dialects and launching farm advisors to assist the small-plot farmers who make up the majority of the population in Africa. Gates sees this as a path to “dramatically raise their productivity,” a feat he believes is entirely “doable.”
The focus on global health was reinforced by the recent pledge of $1.9 billion from the Gates Foundation and other international partners to combat polio, underscoring the foundation’s commitment to strengthening health systems alongside technological innovation.
“We can take these wonderful pledges that we’ve just got and make sure we use them very effectively. It’ll be a year where we’re piloting a lot of those AI tools, the virtual doctor, supporting all the African dialects, the farm advisor… most people in Africa are farmers who have very small plots of land, and today very low productivity,” he said.