{"id":26744,"date":"2023-06-23T21:35:14","date_gmt":"2023-06-24T01:35:14","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/ai-stocks-are-a-long-way-from-a-bubble\/"},"modified":"2023-06-23T21:35:15","modified_gmt":"2023-06-24T01:35:15","slug":"ai-stocks-are-a-long-way-from-a-bubble","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=26744","title":{"rendered":"AI Stocks Are a Long Way From a Bubble"},"content":{"rendered":"
\n
<\/p>\n
<\/p>\n<\/figure><\/div>\n

The stock market has disturbed, irritated, and puzzled investors by rallying this year, and so the \u201cI told you so\u201ds were flying this past week after all three major indexes slumped. But this isn\u2019t the beginning of the end. Stocks haven\u2019t gotten frothy enough. <\/p>\n

The
\n S&P 500
\n index fell 1.4% this past week, snapping a five-week winning streak, while the
\n Dow Jones Industrial Average
\n dropped 572 points, or 1.7%, and the
\n Nasdaq Composite
\n declined 1.4%, ending an eight-week winning streak. Yet even after the drops, the S&P 500 remains up 13% in 2023.<\/p>\n

\n

It\u2019s no secret what\u2019s driving the gains. The big seven stocks,
\n Apple
\n (ticker: AAPL),
\n Microsoft
\n (MSFT),
\n Alphabet
\n (GOOGL),
\n Amazon.com
\n (AZMN),
\n Nvidia
\n (NVDA),
\n Tesla
\n (TSLA), and
\n Meta Platforms
\n (META), are up a market capitalization-weighted average of 25% since the Nasdaq started its run eight weeks ago, and 14% since Nvidia reported blowout quarterly numbers on May 24, boosted by rising demand for artificial-intelligence computing power. <\/p>\n

And even in a down week, three of the seven finished the week higher, and all but Microsoft and Tesla outperformed the S&P 500. <\/p>\n

It isn\u2019t all AI, says Brian Rauscher, head of global portfolio strategy for Fundstrat. The \u201cmagnificent seven,\u201d as he calls them, cut costs to start the year. That is now showing up in Wall Street projections. For the group, earnings estimates for 2023 and 2024 are up an average of 7% and 6%, respectively, over the past few months. <\/p>\n

AI is a coming tailwind. \u201cI never use the term AI; I barely know what it means,\u201d he says. But \u201cis this the beginning of a six- to 12-month surge in [estimate] revisions like we saw during the [dot-com] bubble?\u201d <\/p>\n

That potential isn\u2019t reflected in stocks yet. Microsoft, for instance, is back to trading only where it was in late 2021, and that\u2019s probably a reflection of current fundamentals, not AI optimism, says Francisco Bido, a portfolio manager at Integrated Alpha. \u201cMicrosoft\u2026will be a beneficiary of the AI movement,\u201d he says. \u201c[The stock] has another 20% to 30% in front of it.\u201d <\/p>\n

So how will we know when AI has reached bubble territory? Look for the silly acronyms and novel valuation methodologies to begin popping up. That\u2019s what happened during the dot-com boom when investors suddenly paid attention to eyeballs and clicks more than actual earnings and earnings growth. Beware when the talk turns to exaflops to market cap (look it up). <\/p>\n

\u201cWe\u2019re so early in this phase of FOMO,\u201d Rauscher says, referring to the fear of missing out. \u201cI would not be surprised before year end [to see] a brand-new valuation methodology\u2026some new AI metric.\u201d <\/p>\n

There is no guarantee that AI will become everything that investors imagine. But tech doesn\u2019t need that to keep working. With inflation sticky, the Fed might not be done raising interest rates. But that\u2019s a reason to avoid overweighting banks and energy, Rauscher says. Tech should be just fine. <\/p>\n

\u201cIf you can\u2019t bet on \u2019em, don\u2019t bet against \u2019em,\u201d says Rauscher. <\/p>\n

At least not until the bubble really gets inflated.<\/p>\n

<\/p>\n
<\/p>\n<\/figure><\/div>\n

Write to <\/strong>Al Root at allen.root@dowjones.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

The stock market has disturbed, irritated, and puzzled investors by rallying this year, and so the \u201cI told you so\u201ds were flying this past week after all three major indexes slumped. But this isn\u2019t the beginning of the end. Stocks haven\u2019t gotten frothy enough. The S&P 500 index fell 1.4% this past week, snapping a […]<\/p>\n","protected":false},"author":1,"featured_media":26745,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-26744","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nAI Stocks Are a Long Way From a Bubble | iFintechWorld<\/title>\n<meta name=\"description\" content=\"The stock market has disturbed, irritated, and puzzled investors by rallying this year, and so the \u201cI told you so\u201ds were flying this past week after all\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/ifintechworld.com\/?p=26744\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta 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