Sam Altman says there's an AI bubble. What Wall Street thinks.
Tech earnings have given investors a lot to celebrate over the last couple of weeks. Hyperscalers such as Microsoft, Alphabet, and Amazon.com posted better-than-expected earnings growth. The AI giants, including Meta Platforms, also committed to spending billions more on AI infrastructure in the months ahead.
'These huge investments support earnings because they are revenue for someone, and they help drive productivity gains and boost profit margins—not just for the technology companies but for all of corporate America," wrote Jeff Buchbinder, chief equity strategist at LPL Financial, on Monday.
As of Friday's close, the S&P 500's market cap gain for the year was $4.865 trillion, according to Dow Jones Market Data. The Magnificent 7 has contributed roughly 43% of that.
The market cap value of the S&P 500 as of Friday's close was $54.67 trillion, while the market cap for the Mag 7 was $19.68 trillion, or 36% of the S&P 500's market cap.
Valuations are also high. The S&P 500's forward price to earnings valuation is 22.5 times. Six of the Mag 7 stocks are trading at higher multiples than that.
Nvidia is trading at 34.9 times earnings expected over the next 12 months; Microsoft is at 32.7 times; Apple at 29.6 times; Amazon at 31.7 times; Meta at 26.1 times; and Tesla at 151.6 times forward earnings.
Apple, Meta, and Tesla are also trading above their five-year historic averages.
Other tech stocks are pricey, too. Netflix is trading at 41.2 times forward earnings, Oracle at 34.5 times, and Broadcom at 38.2 times.
According to an article from The Verge on Friday, OpenAI Chief Executive Sam Altman told reporters that he thinks the AI market is in a bubble.
'Are we in a phase where investors as a whole are overexcited about AI? My opinion is yes. Is AI the most important thing to happen in a very long time? My opinion is also yes," Altman said, according to the article. Barron's has reached out to OpenAI for comment.
On top of concerns that near-term expectations for AI stock returns are too high, the broader economic environment is uncertain. The July jobs report was a disappointment, and May and June revisions to the downside were a shock. Wholesale inflation came in hotter than expected for July, and the most hefty of President Donald Trump's tariff policies have recently started to go into effect.
Wall Street is now looking to the Federal Reserve's monetary policy symposium this week, where Chair Jerome Powell could possibly offer a more hawkish view on rate cuts than investors might want to hear.
This puts highly valued tech stocks at risk.
'If everybody is fully invested, or nearly fully invested in a small cadre of very highly valued stocks, who's there to buy them if they hit an air pocket or sentiment changes?" Steve Sosnick, chief strategist at Interactive Brokers, told Barron's on Monday. He added that it's like if there's an 'overcrowded building and everybody needs to rush to the exits, people get trampled, and that is the risk here."
Not everyone on Wall Street is concerned. Richard Saperstein, chief investment officer at Treasury Partners, wrote on Monday that 'big technology stocks have led the market higher and will continue to dominate market performance. We expect continued earnings growth, reinvestment of cash flows and expansion of their globally dominant footprints."
Saperstein noted that investors should remain fully invested in U.S. stocks with a concentration in large-cap technology stocks.
'Stocks will likely benefit from deregulation, onshoring and capital expenditure expensing which will eventually become a tailwind for economic growth," Saperstein added.
Write to Angela Palumbo at angela.palumbo@dowjones.com
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Economic Times
28 minutes ago
- Economic Times
UK shelves plan to access US user data from Apple
Synopsis The dispute surfaced at the start of the year with a news report that British security officials had issued the US tech giant with a secret order requiring the creation of backdoor access to view fully encrypted material. Apple challenged the order, which raised fears of electronic spying by national security officials. LONDON: Britain abandoned its demand that Apple provide so-called backdoor access to any encrypted user data stored in the cloud, US Director of National Intelligence Tulsi Gabbard said Monday. Gabbard indicated London and Washington had resolved their high-stakes dispute over electronic privacy, writing on X that she and President Donald Trump and Vice President JD Vance spent the "past few months" working with the UK government. "As a result, the UK agreed to drop its mandate for Apple to provide a 'back door' that would have enabled access to the protected encrypted data of American citizens and encroached on our civil liberties," she dispute surfaced at the start of the year with a news report that British security officials had issued the US tech giant with a secret order requiring the creation of backdoor access to view fully encrypted challenged the order, which raised fears of electronic spying by national security officials. The British government reportedly served Apple with what is known as a "technical capability notice" ordering it to provide the access under a sweeping law called the Investigatory Powers Act of 2016, which has been dubbed the snoopers' U.K. Home Office did not respond directly to Gabbard's statement, saying it "does not comment on operational matters, including confirming or denying the existence of such notices.""We have long had joint security and intelligence arrangements with the US to tackle the most serious threats such as terrorism and child sexual abuse, including the role played by fast-moving technology in enabling those threats," the office said. "We will always take all actions necessary at the domestic level to keep UK citizens safe."
&w=3840&q=100)
Business Standard
28 minutes ago
- Business Standard
Meta splits AI group into four parts in pursuit of superintelligence
Meta Platforms Inc. is splitting its newly formed artificial intelligence group into four distinct teams and reassigning many of the company's existing AI employees, an attempt to better capitalize on billions of dollars' worth of recently acquired talent. The new structure is meant to 'accelerate' the company's pursuit of so-called superintelligence, according to an internal memo sent Tuesday by Alexandr Wang, the former Scale AI chief executive officer who recently joined Meta as chief AI officer. 'Superintelligence is coming, and in order to take it seriously, we need to organize around the key areas that will be critical to reach it — research, product and infra,' Wang wrote in the memo, which was reviewed by Bloomberg News. The group, known as Meta Superintelligence Labs, or MSL, will now have four parts: TBD Lab, led by Wang, which will oversee Meta's large language models, including the Llama tools that underpin its AI assistant. FAIR, an internal AI research lab that's existed within the company for more than a decade. The team, whose name stands for fundamental AI research, is focused on longer-term projects. Products and Applied Research, a team led by former GitHub CEO Nat Friedman, which will take those models and research and put them into consumer products. MSL Infra, which will focus on the expensive infrastructure needed to support Meta's AI ambitions. No layoffs were part of Tuesday's reorganization, according to a person familiar with the matter, who asked not to be identified because the deliberations are private. Details of the new structure were first reported by the Information. Meta is hoping to stabilize its AI efforts after months spent poaching dozens of top AI researchers from competitors with lofty pay packages, many reaching hundreds of millions in total compensation. CEO Mark Zuckerberg has said the company's goal is to achieve superintelligence, or AI technology that can complete tasks even better than humans, and he expects to spend hundreds of billions of dollars on the talent and infrastructure needed to get there. But Meta's AI leadership has faced several shake-ups in the past few years, including multiple changes this year alone as the company has raced to keep pace with rivals like OpenAI and Google. Before announcing MSL in June, the social media giant had three primary AI teams — FAIR, an AI products group, and the AGI foundations team, which focused on generative AI products and research. The AGI foundations group is being dissolved, and leaders Ahmad Al-Dahle and Amir Frenkel are now 'focusing on strategic MSL initiatives' and reporting to Wang, according to the memo. The former head of the AI products group, Connor Hayes, was already reassigned to run Threads, Meta's rival product to Elon Musk's X. As part of Tuesday's reorganization, Aparna Ramani, a Meta vice president charged with leading the company's AI, data and developer infrastructure units, will run the MSL Infra team, according to the memo. Robert Fergus will continue to lead FAIR, an organization he co-founded in 2014. He had previously left the group and spent several years at Alphabet Inc.'s DeepMind before returning to run FAIR this spring. Loredana Crisan, who previously led the company's Messenger app and moved to the company's generative AI group in February, is departing Meta for Figma Inc., according to a person familiar with the move.
Time of India
an hour ago
- Time of India
US tariff impact: S&P says India's long-term growth story intact; cites reforms and robust domestic demand
S&P Global Ratings on Tuesday said that high US tariffs are unlikely to derail India's long-term growth prospects, citing the government's focus on reforms, infrastructure investment and improving living standards. The ratings agency, which recently upgraded India's sovereign credit rating to 'BBB' with a stable outlook after 18 years, pointed to strong economic fundamentals and fiscal discipline as key drivers, PTI reported. 'Going forward, we expect this growth dynamics will continue to play out over 3 years with growth averaging about 6.8 per cent. If infrastructure and connectivity improve in India, it will remove bottlenecks that are hindering long-term economic growth and bring India's potential growth path even higher,' S&P Global Ratings Director YeeFarn Phua said. India, Phua added, remains one of the strongest and best-performing economies globally. 'Over the past 3-4 years, India has been an outperformer in growth compared to regional peers,' he said at a webinar on India's rating upgrade. On the specific impact of higher tariffs, S&P Asia Pacific Economist Vishrut Rana said India's economy is largely sheltered due to its domestic orientation. 'India's economy is relatively less trade-oriented, with external demand contributing only 15 per cent of the overall economy and 85 per cent driven by domestic factors. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like American Investor Warren Buffett Recommends: 5 Books For Turning Your Life Around Blinkist: Warren Buffett's Reading List Undo So it is a very heavily domestically oriented economy. That is one element of shelter,' Rana said. He noted that mitigating factors, such as exemptions for some sectors and limited exposure to the US, would cushion the blow. 'It is a complicated environment. There are several mitigating factors which are likely to cushion the overall impact on the economy. Still, we could see some short-term confidence effects on the economy. Medium term, the structural factors — favourable growth path, infrastructure and continued favourable business environment — will determine the growth path,' Rana said. The US has already imposed a 25 per cent tariff on Indian goods effective August 7, with an additional 25 per cent duty scheduled from August 27, taking the total to 50 per cent. Phua stressed that India is staying on course with reforms despite external disruptions. 'These external developments (like high tariffs) can sometimes create some noise but by and large, this government is staying on course and trying to improve the standard of living for its people,' he said. Asked about the tariff impact on growth, Phua underlined that S&P takes a long-term approach. 'Exposure of India to the US in terms of exports is just 1 pc of GDP. So, even though tariffs remain high, we don't think it will have an overall impact on India's long-term growth prospects. Short term, it might have some marginal hit to growth, over a longer term, we believe India's growth story remains sound,' he added. Stay informed with the latest business news, updates on bank holidays , public holidays , current gold rate and silver price .
