Is AI Market Forming a Bubble? Nasdaq-100 ETF in Focus
Altman sees similarity between the current environment to the dot-com boom of the late 1990s, which was hit hard when many Internet companies failed to materialize the euphoria into profits.
Warnings From Industry Leaders
Altman's remarks mirror concerns raised by other influential figures in business and finance. Alibaba co-founder Joe Tsai, Bridgewater Associates founder Ray Dalio, and Apollo Global Management's chief economist Torsten Slok have all cautioned that AI valuations may be overheating.
Slok has even argued that the present AI surge could be more inflated than the Internet bubble, pointing out that today's most valuable companies in the S&P 500 are more stretched in valuation than they were during the 1990s. Note that between March 2000 and October 2002, the Nasdaq lost nearly 80% of its value.
Analysts Divided on the Bubble Narrative
Not all analysts think that the entire AI market has entered bubble territory. Some experts argue that the fundamentals of AI and semiconductor supply chains remain strong and that the long-term growth prospects justify continued investment. However, many fear that capital is being invested in companies with weaker fundamentals, which may cause problems later on.
Rising Competition From Low-Cost Chinese Peers
The concerns intensified earlier this year when the 'Magnificent Seven' had fallen from grace due to factors such as new, cheaper-cost AI entrants (e.g., DeepSeek) and individual companies' ability to handle broader macro uncertainty.
DeepSeek, a Chinese startup developing AI models, revealed in late January that training the R1 model cost just $5.6 million, significantly less than the $100 million required to train OpenAI's GPT-4 model.
On the other hand, Alibaba BABA introduced the QwQ-32B model, an AI system that rivals DeepSeek but requires only a fraction of the data. Such advancements triggered doubts that the huge capital investments deployed by U.S. tech majors to develop AI technologies will generate the expected returns at all.
Rocky Journey of ChatGPT-Fame Open AI
Although the credibility of these claims has been questioned, the development has raised questions about whether current spending levels in AI are sustainable. Despite OpenAI's huge success and its annual recurring revenue projection to top $20 billion this year, the company remains unprofitable.
The rollout of its latest GPT-5 model has also been anything but smooth, with some users finding it less intuitive than expected.
Nasdaq-100 ETF in Focus
Most AI biggies have exposure to the Nasdaq-100-based exchange-traded fund (ETF) Invesco QQQ Trust, Series 1 QQQ. The P/E ratio of QQQ stands at 59.27X. The 10-year range of the P/E ratio is 19.7X to 59.46X. The median P/E of the past 10 years is 25.8X. This shows the overvaluation concerns associated with QQQ.
However, the price-to-book (P/B) ratio of QQQ is currently 3.6X, which is the lowest value considering the past 10-year range. The 10-year median P/B is 6.03X, per Gurufocus.com. Moreover, with the Fed likely to cut rates in the coming months amid a weakening labor market, the growth stocks of QQQ should see some tailwinds.
Hence, the sudden crash of AI euphoria (if there is any) may not hurt QQQ that hard. Still, investors should be mindful of relentless AI investing going forward. Their portfolio may need diversification at the current juncture.
Note that the annualized return of QQQ is 18.78% over the past 10 years, while it is 21.23% over the past three years (due to the AI rally).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Invesco QQQ (QQQ): ETF Research Reports
Alibaba Group Holding Limited (BABA) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research
Inicia sesión para acceder a tu portafolio
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
New York Times
10 minutes ago
- New York Times
OpenAI in Deal Talks That Would Value the Company at $500 Billion
OpenAI, the maker of ChatGPT, is in talks to sell $6 billion in shares owned by its current and former employees to investors, in a deal that would value the artificial intelligence company at roughly $500 billion, according to two people with knowledge of the discussions. At $500 billion, OpenAI would become the world's most valuable privately held company, according to data from the start-up tracker CB Insights. The San Francisco-based A.I. lab has raised billions of dollars in recent years from investors including Microsoft, SoftBank and venture capital firms, as it has raced to take the lead in the contest over artificial intelligence. OpenAI has seen its valuation repeatedly jump higher, from $157 billion in October to $300 billion in March. That month, the company reached an agreement with SoftBank and other investors for a new funding, which was set to raise $40 billion by the end of the year. In this latest deal, known as a secondary market sale, OpenAI's current and former employees would agree to sell company shares to SoftBank, Thrive Capital and its other investors, the people with knowledge of the discussions said. The talks over the transaction are ongoing and the particulars could change. The discussions over a secondary market sale were earlier reported by Bloomberg. Across Silicon Valley, A.I. companies have been deluged by investor interest amid an escalation in the race over the technology. Meta, Google, Amazon, Microsoft and OpenAI are spending billions to hire A.I. researchers to advance the technology, as well as building out data centers and other infrastructure to power the development of A.I. Investors are eager to get a piece of the action. Venture capital deals for A.I. start-ups reached $129 billion this year through Aug. 18, up from $106 billion for all of 2024, according to data from PitchBook, which tracks start-ups. On Tuesday, Databricks, a San Francisco company that makes software to help businesses store and analyze data using A.I., announced a new funding that it said valued it at more than $100 billion, up from $62 billion previously. Ali Ghodsi, a co-founder and the chief executive of Databricks, said the company had not actively been looking to raise money but had started receiving calls, texts, emails and WhatsApp messages from investors a couple of weeks ago. He said the flood of interest followed the initial public offering of Figma, a design software start-up that exceeded expectations by soaring to a $67.7 billion market capitalization on its first trading day last month. 'Everybody thinks it's a big market opportunity,' Mr. Ghodsi said. 'It wouldn't be smart for me to say let's wait another two years before we do that investment.' He said Databricks has 'no immediate plans' to go public. Before this latest financing, the start-up, which was founded in 2013, had raised $19 billion from investors including Thrive Capital and Andreessen Horowitz. The company did not disclose the funding amount it raised on Tuesday because the round has not closed. OpenAI has been raising money as it competes fiercely with rivals like Google. In its March fund-raising for $40 billion, SoftBank is providing 75 percent of the funding, with other investors chipping in the rest. While the other investors have delivered their share, SoftBank has until the end of the year to do so. SoftBank can reduce its share of the round to $20 billion from $30 billion if OpenAI does not change its unorthodox structure by the end of the year. OpenAI is an unusual combination of a nonprofit and for-profit company. For the past 18 months, it has worked to adopt a more traditional corporate structure that would eventually allow it to go public. But Elon Musk, one of OpenAI's founders, who now runs a rival A.I. company called xAI, is trying to block the company's efforts to restructure through a lawsuit in federal court. Others have called on the attorneys general in California, where OpenAI is headquartered, and in Delaware, where the company was registered, to stop the restructuring, saying that OpenAI is abandoning the original mission of the nonprofit. OpenAI's stated mission was to build A.I. for the benefit of humanity, not for financial gain. Both attorneys general have said they are monitoring the situation. (The New York Times has sued OpenAI and its partner, Microsoft, accusing them of copyright infringement of news content related to A.I. systems. OpenAI and Microsoft have denied those claims.)
Yahoo
13 minutes ago
- Yahoo
Walmart's earnings report will test investor confidence in US market
By Siddharth Cavale NEW YORK (Reuters) -Investors expect Walmart's management to strike a cautious tone on customer demand as the U.S. labor market cools and inflation ticks up, though the company has outperformed its peers over the last year due to its reliance on grocery sales and wealthier customers shopping there more often. Still, analysts say this environment is a sweet spot for Walmart, which reports second-quarter results on Thursday before markets open. Its low-price model and dominance in grocery can help it weather economic storms better than others. The world's largest retailer by sales has surpassed earnings estimates for 11 consecutive quarters, according to LSEG data, sending its valuation soaring even as other consumer staples companies have struggled this year. The Arkansas-based chain's stock has gained nearly 37% in the last 12 months, one of the notable non-tech companies leading a market that has largely sloughed off the effects of U.S. President Donald Trump's ongoing trade war. The broader Consumer Staples sector is up 4.5%, trailing the broad-market S&P 500. The company's May-to-July results are the most closely watched event among this week's retail earnings, following Tuesday's results from Home Depot and Wednesday's reports from Lowe's and Target. Its significance goes beyond retail; as one of the largest and most recognizable companies in the U.S., Walmart is viewed as a barometer for the state of the U.S. consumer. "Walmart essentially is middle America, so I'll be looking for cues from Walmart as to the health of the broader economy," said Charles Sizemore, a Walmart investor. U.S. shoppers remain resilient despite declining sentiment, but they are being increasingly selective about purchases and have shown signs of trading down. RBC Capital Markets analyst Steven Shemesh cautioned that Walmart may adopt a more cautious tone heading into the second half. "The million-dollar question at this point is how customers respond to higher prices. We have seen some higher prices to date, and the consumer has managed through them OK, and we haven't seen a material impact to volume. But I don't think they're very widespread price increases at this point where the consumer has really noticed," Shemesh said. Home Depot missed estimates for quarterly revenue and profit, but kept its annual forecasts intact on Tuesday. Walmart's forward price-to-earnings ratio currently stands at 35.7, compared with an average of 25.5 over the past five years, suggesting investors expect growth. Its market value has soared to about $800 billion, per LSEG Datastream. Investors and analysts expect the retailer to report earnings of 74 cents a share, up nearly 11% from a year ago, and revenue of $176.16 billion, up 4%. Sales fell slightly short of expectations in Walmart's last quarter, but July's retail sales report bolstered analysts' confidence in current spending trends. "July's data showing retail sales grew faster than inflation tells me that the consumer is still spending and unit counts are up," said D.A. Davidson analyst Michael Baker. Reuters' global tariff tracker shows at least 92 out of nearly 300 companies have announced price hikes in response to the trade war, with about one-third from the consumer sectors. That includes Tide detergent and Bounty paper towels maker Procter & Gamble, a top Walmart supplier. "Third quarter is the make-or-break quarter, really, where the higher prices ... are going to be passed along in a more broader way than what we are seeing now," Shemesh said.
Yahoo
14 minutes ago
- Yahoo
Discovering Undiscovered Gems in the US Market August 2025
As the U.S. stock market navigates through a period of mixed performance with the Dow Jones Industrial Average reaching new highs while the S&P 500 and Nasdaq face declines, investors are keenly observing potential shifts in Federal Reserve policies that could impact future market dynamics. In this environment, identifying stocks with strong fundamentals and growth potential becomes crucial, especially as major indices fluctuate and economic indicators remain uncertain. Top 10 Undiscovered Gems With Strong Fundamentals In The United States Name Debt To Equity Revenue Growth Earnings Growth Health Rating Southern Michigan Bancorp 117.38% 8.87% 4.89% ★★★★★★ Oakworth Capital 87.50% 15.82% 9.79% ★★★★★★ ASA Gold and Precious Metals NA 12.79% -0.59% ★★★★★★ Sound Financial Bancorp 34.70% 2.11% -11.08% ★★★★★★ Metalpha Technology Holding NA 75.66% 28.60% ★★★★★★ First Northern Community Bancorp NA 8.05% 12.27% ★★★★★★ Senstar Technologies NA -20.82% 14.32% ★★★★★★ Valhi 44.30% 1.10% -1.40% ★★★★★☆ Pure Cycle 5.02% 4.35% -2.25% ★★★★★☆ Rich Sparkle Holdings 26.73% -6.13% 1.75% ★★★★★☆ Click here to see the full list of 286 stocks from our US Undiscovered Gems With Strong Fundamentals screener. Let's review some notable picks from our screened stocks. Carter Bankshares Simply Wall St Value Rating: ★★★★☆☆ Overview: Carter Bankshares, Inc. is the bank holding company for Carter Bank & Trust, offering a range of retail and commercial banking products and insurance services in the United States, with a market capitalization of $414.86 million. Operations: Carter Bankshares generates revenue primarily from its banking segment, totaling $153.12 million. Carter Bankshares, with assets totaling US$4.8 billion and equity of US$405.6 million, has been making waves recently. The company reported a significant earnings growth of 152.5% over the past year, outperforming the industry average of 12.5%. Despite this impressive performance, it grapples with a high level of bad loans at 6.7%, coupled with an insufficient allowance for bad loans at 28%. Recently added to multiple Russell indexes and completing a share buyback worth US$10.41 million for 171,899 shares, CARE seems poised for continued attention in investment circles due to its strong earnings momentum and strategic moves. Delve into the full analysis health report here for a deeper understanding of Carter Bankshares. Learn about Carter Bankshares' historical performance. Northrim BanCorp Simply Wall St Value Rating: ★★★★★★ Overview: Northrim BanCorp, Inc. is the bank holding company for Northrim Bank, offering commercial banking products and services to businesses and professional individuals, with a market cap of $476.66 million. Operations: Northrim BanCorp generates revenue primarily through its Community Banking segment with $121.89 million, followed by Home Mortgage Lending at $35.57 million and Specialty Finance contributing $6.39 million. Northrim BanCorp, with assets totaling US$3.2 billion and equity of US$290.2 million, stands out for its robust financial health. The company boasts total deposits of US$2.8 billion against loans of US$2.2 billion, indicating a solid funding base primarily from customer deposits—considered low risk compared to external borrowing. Its allowance for bad loans is sufficient at 190%, covering non-performing loans which are just 0.5% of total loans, well within acceptable limits. Recent earnings growth was impressive at 39%, far surpassing the industry average of 12%. Northrim's inclusion in multiple Russell indices highlights its recognition as a promising player in the market landscape. Get an in-depth perspective on Northrim BanCorp's performance by reading our health report here. Examine Northrim BanCorp's past performance report to understand how it has performed in the past. Shore Bancshares Simply Wall St Value Rating: ★★★★★★ Overview: Shore Bancshares, Inc. functions as a bank holding company for Shore United Bank, N.A., with a market capitalization of $525.66 million. Operations: Shore Bancshares generates revenue primarily from its community banking segment, which reported $208.21 million. Shore Bancshares, with total assets of US$6.0 billion and equity of US$565.2 million, presents a robust financial profile. Its net interest margin stands at 3.1%, supported by total deposits of US$5.3 billion and loans amounting to US$4.8 billion. The bank maintains a sufficient allowance for bad loans at 344% coverage, with non-performing loans at just 0.3%. Trading at a price-to-earnings ratio of 9.9x, it offers good value compared to the broader market's 18.8x average, while its earnings growth last year outpaced the industry significantly by reaching an impressive 166%. Dive into the specifics of Shore Bancshares here with our thorough health report. Gain insights into Shore Bancshares' past trends and performance with our Past report. Key Takeaways Take a closer look at our US Undiscovered Gems With Strong Fundamentals list of 286 companies by clicking here. Already own these companies? Bring clarity to your investment decisions by linking up your portfolio with Simply Wall St, where you can monitor all the vital signs of your stocks effortlessly. Elevate your portfolio with Simply Wall St, the ultimate app for investors seeking global market coverage. Seeking Other Investments? Explore high-performing small cap companies that haven't yet garnered significant analyst attention. Fuel your portfolio with companies showing strong growth potential, backed by optimistic outlooks both from analysts and management. Find companies with promising cash flow potential yet trading below their fair value. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Companies discussed in this article include CARE NRIM and SHBI. Have feedback on this article? Concerned about the content? with us directly. Alternatively, email editorial-team@
