6 months ago • 2 mins
There’s been a ton of hype around AI since ChatGPT stormed onto the scene late last year – so much so that it’s basically been the driver of all the S&P 500’s gains this year. With that kind of momentum, it’s no real surprise some are asking whether we’re looking at an AI bubble. It’s a fair question when you consider too that tech titans have gone from being hit hard by the Federal Reserve’s (the Fed’s) interest rate hikes to being back in prime market-leading positions – all within the space of a few months.
This chart from Bank of America may help put things in perspective though: it shows that if AI is a bubble right now, it’s a baby one – at least, relative to ones that’ve come before. And there’s a chance this bubble (if that’s what we’re calling it) has only just started inflating.
For one thing, retail investors haven’t yet piled in en masse, leaving more upside if (and when) they do. And for another, the hype around AI is grounded in heaps of real potential, some of which is already in action in sectors like education. Goldman Sachs is predicting that the technology’s boost to productivity could fatten S&P 500 profits by an eye-popping 30% in the next decade – while others haven’t put a limit on its potential.
Look, investors’ imaginations are running wild now on what AI can achieve. And there are definitely some signs of bubbly froth in the space: the mere mention of “AI” in a press release can send a company’s share price skyward. But markets are the ultimate arbiters, and over time they’ll sort the wheat from the chaff of AI plays. And that’s why you want to be careful not to follow the crowd into an investment – do your own research, look beyond the latest craze, and focus on firms that stand to see their profits benefit most from the tech. And while there’ll undoubtedly be bumps in the road (Bank of America’s been warning that more hikes from the Fed could put a dent in markets and the AI hype), play it right and you could end up sitting on a tidy return in the long run. For ideas on where to look, check out Reda’s Insight on which stocks are set to benefit the most from AI.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.
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