Chris Wood, global head of equity strategy at Jefferies, said the AI boom is being widely misunderstood, and that investors may be overestimating how profitable it will ultimately become. Wood, known for his weekly GREED & Fear reports, spoke to Mahesh Nandurkar, head of research and strategist for India at Jefferies, at an event in Mumbai.

“The internet economy was a winner-takes-all model,” Wood said, contrasting it with the current cycle. “AI looks much more like the airline industry — capex intensive.”

In his view, consumer AI has yet to prove its ability to generate meaningful revenues. “There’s no sign, when it comes to the consumer market for AI, that anyone’s monetising these chat boxes,” he said. “What’s the killer app on OpenAI? I think the killer app is kids doing their homework, which may not necessarily be positive.”

Where he does see evidence of monetisation is in the corporate segment. Enterprise adoption, rather than consumer usage, is likely to drive revenues. For Indian IT services firms, that creates both risk and opportunity.

“While the Indian IT services industry clearly faces real disruption risk, the role of the Indian IT services sector in the next few years is going to be migrating corporate clients to small language models,” he said, referring to customised AI systems built on proprietary company data.

At the same time, Wood warned that AI could pose broader risks to the global software ecosystem. “If AI is as negative for software as we’ve been told — and there’s got to be better than a 50% chance that it is — that will cause big problems in the US,” he said.

He argued that the bigger vulnerability may lie in private equity. “The real bubble in this cycle is private equity and private credit in America,” Wood said. “The sector these guys have invested most in over the last five or six years is software — and they’ve done it with leveraged buyouts.” If earnings weaken, that leverage could amplify stress.

What does it mean for India-dedicated investors?

For India-dedicated investors, however, Wood remains constructive. “I believe the Indian market is still a very long-term story,” he said. While relative performance versus global emerging markets has fluctuated, he described the domestic market behaviour as “very healthy.”

“We’ve had an extended sideways consolidation for about 18 months,” he noted. “That’s basically allowing valuations to catch up with earnings, so it’s not a disastrous outcome at all.”

What stands out to him is the resilience of domestic flows. “What’s been really amazing is the resilience of the SIP inflows into the Indian stock market,” he said. “The average ticket in an SIP is about $50 a month — that highlights that people believe in the long-term domestic story.”

If the AI cycle were to peak and trigger a global correction, Wood expects an initial broad sell-off. “Normally what happens is everything goes down initially and then it recovers,” he said. However, he suggested India could outperform on a relative basis because of its structural domestic support.

For Wood, The real bubble is the US private equity and private credit industry. “Over the last five to six years, they’ve invested heavily in software through leveraged buyouts. Doing leveraged buyouts in software companies seems inherently risky. That’s where the blow-up could occur. If that happens, Indian private equity offices may face pressure from their global headquarters,” he said.