AI stocks could crash like Dot-Coms, says Wall Street veteran — suggests these safer bets instead
dot-com bubble
, warned a seasoned Wall Street investor, Richard Bernstein, as per a report.
Bernstein, who is the CIO of Richard Bernstein Advisors, based on his analysis, said that it may be time for investors to step back from the hype and consider something a bit less thrilling but possibly more rewarding in the long term, according to Business Insider.
AI Hype Mirrors Past Market Bubbles
He wrote in a post that, "Investors seem universally focused on 'AI' which seems eerily similar to the '.com' stocks of the Technology Bubble and the 'tronics' craze of the 1960s. Meanwhile, we see lots of attractive, admittedly boring, dividend-paying themes," as quoted in the report.
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Markets Soar as AI Optimism Drives Major Gains
Since ChatGPT went live in late 2022, the stock market has experienced dramatic gains, particularly in tech stocks, and the S&P 500 has jumped 54%, and the Nasdaq 100 has increased 90%, as reported by Business Insider. Even valuations are at levels that haven't been reached since the peak of the dot-com bubble—or even the 1929 market peak, according to the report.
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Caution Advised as Rally Shows Signs of Maturity
Even though Bernstein said he is not calling a top, but has pointed out that trades eventually go the other way, and the best time to invest in something is when it's out of favour, not when a major rally has already occurred, as reported by Business Insider.
He explained that, "At the beginning of a bull market when momentum and beta strategies are by definition most rewarded, investors' fears leads them to emphasize dividends and lower-beta equities," adding, "In later-cycle periods when dividends and lower beta become more attractive, investors' confidence leads them to risk-taking and momentum investing," as quoted in the report. Bernstein pointed out that, "We clearly are not at the beginning of a bull market and, as we've previously written, the profits cycle is starting to decelerate," as quoted in the report.
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Dividend Stocks Positioned for a Comeback
Bernstein highlighted that currently dividend stocks could be ripe for appreciation and also shared that he especially likes utilities stocks, which are known for issuing dividends, as reported by Business Insider.
He also suggested that, "One of the easiest methods for building wealth has historically been the power of compounding dividends.
Compounding dividends
is boring as all get out, but it's been highly successful through time," adding that, "In fact, compounding dividend income has been so successful, that the Dow Jones Utilities Index's returns have been roughly neck-and-neck with NASDAQ returns since NASDAQ's inception in 1971!," as quoted by Business Insider.
FAQs
Is Bernstein saying the AI stock boom is over?
Not exactly. He's not calling the top, but he believes the risks are rising, and it's a good time to be cautious.
What's the benefit of reinvesting dividends?
Reinvesting allows your investment to compound over time, essentially earning money on your money.
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