tech
'There won't be an AI bubble like dot-com' says investment expert
An investment expert has shared why he thinks everyone predicting an AI bubble is wrong – and why this boom is different from the Dotcom bubble. Investors have barely been able to open a newspaper over the past few years without being warned that the AI boom is a bubble waiting to burst.
TL;DR
- AI boom differs from the dot-com bubble because current companies are making substantial profits.
- In 1999, share prices outpaced earnings, but now profits are growing as fast as or faster than share prices.
- Nvidia's profitability has grown faster than its share price, contradicting the 'bubble' narrative that investors ignore profits.
- Today's AI beneficiaries are established businesses with billions in earnings, unlike many dot-com era companies.
- Current valuations are high but normal relative to expected earnings, contrasting with the extreme Nasdaq valuations in 1999.
- Comparisons to Japan's late 1980s market are misleading due to different ownership structures and genuine sales in the AI market.
- Potential risks include companies spending too much on AI infrastructure without guaranteed future demand.
- While AI stocks can fall, this isn't a groundbreaking prediction; the key difference is that earnings are currently supporting stock prices.