‘Today's AI Frenzy Is Worse than 1999's Dot-Com Bubble,' Says Economist

Business Insider

3 days ago

A top economist from Wall Street is warning that AI stock prices may be becoming too high, much like during the dot-com bubble in the late 1990s. Torsten Sløk, chief economist at Apollo Global Management (APO), said on Yahoo Finance's Opening Bid that while AI will likely transform many industries, that doesn't mean investors should buy tech stocks at any price. In a recent note, Sløk shared data showing that the price-to-earnings ratios of the 10 largest companies in the S&P 500—many of which are AI leaders, such as Nvidia (NVDA) and Meta (META) —have now surpassed the extreme levels seen in 1999.
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Sløk explained that this is creating a risky situation where a large part of the market depends on just a few tech giants. He noted that the 10 largest companies now make up almost 40% of the entire S&P 500 (SPY) index. This means that if someone buys the index, thinking they're investing in 500 companies, they're actually heavily exposed to just a few names, especially those tied to AI. Sløk added that the current stock prices of these mega-cap tech companies may not be sustainable since too much of the recent market rally is being driven by excitement and momentum rather than solid fundamentals.
Interestingly, analysts at BTIG have similar worries, as they describe the market's sentiment as 'frothy.' Indeed, they pointed to the BUZZ NextGen AI Sentiment Index, which tracks popular AI stocks among retail investors. That index has jumped 45% over the past 16 weeks and is now 29% above its 200-day average. It is worth noting that these levels have not been seen since early 2021, right before speculative tech stocks began to fall. Because of this, BTIG suggested that investors think about shifting to safer areas like utilities or even Chinese tech stocks.
Which AI Stock Is the Better Buy?
Turning to Wall Street, out of the two stocks mentioned above, analysts think that NVDA stock has more room to run than META, but just barely. In fact, both stocks have almost 6% upside potential from current levels.