Jeremy Siegel, a Wharton professor and well-known economist, has defended AI and asserted that it is not currently in a bubble, despite the warnings of several other economists.
Siegel stated that he has had multiple inquiries on whether the present AI bubble is comparable to the tech boom of the 1990s, which ultimately crashed.
It’s not yet a bubble, according to Siegel, who also noted that the S&P 500 has been rising despite the banking crisis because to a market boom powered by AI stocks.
He said, « Nasdaq was oversold in 2022 and it did bounce back, but I think AI has pushed those big cap tech stocks even higher. »
Noteworthy is the fact that the tech-heavy Nasdaq Composite lost a third of its value in 2018, but has increased by nearly 25% since 2023. Over $4 trillion has been added to the market value of Nasdaq components as a result of the rise, which was mostly driven by firms connected to artificial intelligence.
The gains of the S&P 500 have been entirely accounted for by the top eight or nine businesses, Siegel highlighted. The remaining 490 have been stable or declining this year.
With gains of 167%, Nvidia is, incidentally, the best-performing stock in the S&P 500. As a result of the spectacular post-earnings rise last week, its market cap is currently just shy of $1 trillion.
AI Stocks’ Rise Has Helped in Lifting US Stocks
In the quarter that concluded in April, Nvidia reported revenues of $7.19 billion, a YoY increase of 19%, and more than the $6.52 billion that experts had predicted.
It predicted $11 billion in sales for the second fiscal quarter of 2024, much above the $7.15 billion that experts had predicted.
The chief executive officer of Nvidia, Jensen Huang, stated in his prepared remarks that
« a trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service, and business process. »
In his analysis of the recent week’s increase in Nvidia and AI stock prices, Siegel stated that « first, there was optimism about AI and Nvidia verified that euphoria with blowout earnings. That is a two-push.
Wharton Professor Argues that AI is Not Yet in Bubble Zone
In contrast to some of the other observers, Siegel has a different perspective. David Kostin, the head US stock strategist at Goldman Sachs, for example, cautioned against getting carried away with the « euphoria. »
Similar opinions were expressed by Michael Hartnett, chief investment strategist at Bank of America Global Research, who described the AI-driven surge as a « baby bubble. »
This month, Charlie Munger, vice chairman of Berkshire Hathaway, admitted that he is « skeptical of some of the hype in AI. »
Others view AI as a long-term potential, and Jason Ware, chief investment officer at Albion Financial Group, thinks the industry presents a long-term chance for profit.
Analysts believe Artificial Intelligence will present a long-term opportunity
The advancements in AI will make certain large size, high quality, good firms even better in the future, according to Ware.
« Not every AI company is going to be a winner, » he continued, « but there are quality companies you can own within the space. »
Despite the fact that the market’s perception of AI is still divided, most people think that technology has the capacity to upend the business landscape.
For instance, senior analyst Ben Snider at Goldman Sachs anticipated that AI may boost productivity by 1.5% yearly, which could boost profitability for the S&P 500 by 30% or more over the next ten years.
Although IT businesses appear to be the « immediate winners, » he continued, « the real question for investors is who will be winners down the road. »
