What’s sparking fears of an AI-driven crash?
In a recent research note, Sløk warned that stocks like Nvidia, Microsoft, and Apple, along with seven other companies, have soared so high on AI enthusiasm that their prices are now dangerously detached from reality, as per a Fortune report.
Sløk wrote in his research note that, “The difference between the IT bubble in the 1990s and the AI bubble today is that the top 10 companies in the S&P 500 today are more overvalued than they were in the 1990s,” as quoted by Fortune in its report.
According to the report, currently investors are betting so heavily on AI that the stock price of companies like Nvidia, Microsoft, Apple and others have become detached from their earnings.
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How does this compare to the dot-com bubble of the 1990s?
Sløk even included a chart to explain his analysis, as per Fortune. In the chart, he compared the 12-month forward price-to-earnings (P/E) ratios of the S&P’s top 10 companies to the rest of the index and the S&P 500 as a whole, which shows that today’s bubble is even bigger than the one that marked the end of the dot-com era, as reported by Fortune.According to the Fortune report, although most of those top companies are profitable, compared to the losses of many dot-com darlings before the market crash at that time, the fundamentals do not justify the multiples.ALSO READ: OpenAI unveils ChatGPT Agent: Too tired to plan your date, shop online, or create a slide deck? This new AI tool has you covered
Are investors putting too much faith in AI hype?
Even though the S&P has hit new records recently and is currently close to an all-time high, Sløk pointed out that the performance boost is mainly because of the rise of the Top 10 stocks, according to the Fortune report.
He is concerned that investors are buying the hype and paying prices as if the promises and boasts of these firms, like claims of trillion-dollar savings and world-changing breakthroughs, are already a certainty, as per the report. The Fortune report highlighted that the 1990s were a lesson that not every promise would or could actually become a reality.
Sløk’s not the only warning sounding the alarm, even Alibaba Group Chair Joe Tsai has warned that US AI stocks are in a bubble, as has long-time tech exec Tom Siebel, as reported by Fortune.
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FAQs
Why are people investing so heavily in AI?
Because AI is seen as the next big revolution, capable of saving companies money, transforming industries, and driving future growth, as per the Fortune report.
Are companies like Nvidia and Microsoft really in danger?
They’re strong businesses, but if their stock prices are built on unrealistic expectations, any disappointment could cause a sharp drop, as per Torsten Sløk’s analysis.
