Baffling numbers abound when talking about the winners in today’s stock market: Nvidia alone makes up 8% of the entire S&P 500, fellow chipmaker Broadcom’s stock is priced at 112 times earnings, Palantir’s market value is more than 100 times its revenue.
It all hearkens back to the narrative on every stock broker’s lips at the end of the 1990s: the so-called world wide web would change everything. And even if you’re not old enough to have felt Y2K anxiety as the year 2000 approached, you probably know how the dotcom era ended.
“Bubbles burst not because the story is completely wrong, but because around the margins the story is wrong,” says Rob Arnott, founder and chairman of California-based investment advisor Research Affiliates. “The story of the rate of growth, the time horizon of growth, is unrealistically optimistic, and the risk of competition eroding market share is underestimated.”
Theoretically, stock bubbles can resolve themselves gradually over time, with market prices plateauing while fundamentals catch up, but as Jim Stack, president and founder of InvesTech Research notes, that reality typically calls for a hard landing. The only question is when that landing will come.
Read more insight from investing experts in Hank Tucker’s piece on the AI bubble here, and keep scrolling for more in-depth journalism from our newsroom below. |
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