Seth Klarman, the founder and CEO of Baupost Group, expressed concerns about an AI valuation bubble at the 2026 iConnections Global Alts Conference. He highlighted that while AI is a prominent theme, many companies in the sector exhibit characteristics of a bubble, with sky-high valuations and continuous massive cash burn that do not align with his definition of great enterprises.
Klarman stated that Baupost has completely avoided investments in large language model companies, specifically mentioning OpenAI and Anthropic, due to their exorbitant valuations. He emphasized that in such an exhilarating market, where investors are looking many years out, he finds it impossible to have conviction in companies trading at 40x or even "infinite" multiples, especially given the uncertainties surrounding AI's long-term impact on the economy, employment, and inflation.
Instead of chasing AI pure-plays, Baupost is focusing on bottom-up investment opportunities in overlooked commercial real estate and distressed debt. Specifically, Klarman cited investments in raw land adjacent to power infrastructure that could become data centers, and distressed assisted living facilities that are beginning to show signs of fundamental turnaround post-pandemic. He also mentioned opportunities in industrial land, warehouses, and cold storage, driven by onshoring trends, noting the advantage of operating "below the radar of the big gorilla firms."
Klarman also shared his concern regarding the US debt, which is at 100% of GDP with $2 trillion+ structural deficits, projecting it to reach $50 trillion in five years. He also flagged the Strait of Hormuz as an underpriced risk, with the potential for oil prices to surge to $150+ if it closes for months. On monetary policy, he expects the Federal Reserve to exercise patience, with one or two rate hikes possible, but a cut being the more probable path.
