AI-Bubble in Tech
In recent discussions within the financial media, the question of whether a new bubble is forming in publicly traded shares of companies involved in developing and using artificial intelligence (AI) has been gaining traction. While some stocks have experienced significant rallies, such as Nvidia, Microsoft, Google parent Alphabet, Oracle, and Adobe, it’s premature to declare a full-fledged bubble in AI shares. Drawing parallels to the dot-com bubble of the late 1990s, it’s important to note that a multitude of companies went public during that period, many without any profits to show. In 1999 alone, a staggering 456 stocks debuted amidst the internet mania, with 77% lacking profitability. However, the cautionary tale of the dot-com bubble has yet to be fully replicated in the current AI landscape. While interest in AI has been growing, and investors have been purchasing related tech stocks and associated ETFs, the entire stock market still needs to home in on AI stocks with unwavering focus.
A critical factor in forming a bubble is the increasing issuance of new stocks to meet the overwhelming demand. During the dot-com era, the supply of stocks in the bubble eventually surpassed the extreme demand among traders and investors. It remains to be seen if a similar pattern will emerge with AI stocks. Contrary to past instances, the current financial frenzy is not fueled by “easy money” from the Federal Reserve, as seen in previous bubbles. The public’s investment in AI stocks still needs to be all-encompassing, indicating that we may still need to reach the peak. It’s important to highlight that identifying a bubble in real-time is a challenging task, but history has taught us that they are not impossible to spot. The key distinction lies in differentiating between a small-scale bubble and a massive one, which can potentially crash markets and even entire economies.
What do you think of AI? And will it be a catalyst for a new stock market bubble?
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
