AI stocks in bubble trouble - are Nvidia, Microsoft in danger? Economist says it's worse than the Dot-Com crash of 1999
tech market crash
, one that is even bigger than the dot-com collapse of the late '90s? According to Torsten Sløk, chief economist at Apollo Global Management, we might be, and this time, the bubble is being driven by artificial intelligence, as per a report.
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.
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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.
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Indian Express
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Explore courses from Top Institutes in Select a Course Category Healthcare MBA Design Thinking Data Science Product Management Finance Data Science Management others Digital Marketing Data Analytics Degree healthcare Others Leadership Operations Management MCA Public Policy Artificial Intelligence PGDM CXO Technology Cybersecurity Project Management Skills you'll gain: Financial Analysis in Healthcare Financial Management & Investing Strategic Management in Healthcare Process Design & Analysis Duration: 12 Weeks Indian School of Business Certificate Program in Healthcare Management Starts on Jun 13, 2024 Get Details How did Jensen Huang reverse the U.S. chip ban on China? Huang's move came just days after his meeting with President Trump, but he made it clear during a press conference in Beijing: 'I don't think I changed his mind.' Still, the facts speak for themselves. 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