Spectacular froth in AI stocks, says top City strategist
A “spectacular froth” has built around artificial intelligence (AI) firms as investors scramble to cash in on a boom in interest in recent months, a City analyst has warned.
AI-related stocks have surged to record highs this week, with the US chipmaker Nvidia, a top AI hardware and software maker, soaring in valuation to top $1tn yesterday.
However analyst Bill Blain has today warned investors that a bubble is building as investors follow the flavour of the month rather than “fundamental rules of investment.”
“AI has become the markets new, new thang/bubble as investors pile into the new, new narrative forgetting the fundamental rules of investment are about generating dull, boring, predictable returns,” he said in a note today.
Blain said AI was the “current madness de jour in markets” and fired a series of warnings to investors before they pump their cash into the speculative AI bets.
“AI” is not a new trend. Businesses since year dot have been trying to automate, make simpler, save costs. AI is a continuation of the same trend,” he added.
“The replacement of whole swathes of professional skills by AI will be cost and solution based – much AI may yet prove a brilliant solution in search of a problem in many areas.”
The warnings come after a wave of cash has poured into firms following the launch of OpenAI’s ChatGPT tool in this year.
The boom in interest has powered Nasdaq to a 6.24 per cent return this month, fuelled by Nvidia’s rise to become the fifth US company with a market capitalisation of more than $1tn.
From 2018, global corporate investment in AI increased from $79.6bn to $276.1bn in 2021, according to a report from Stanford University.
Although funding slipped to $189.6bn in 2022, this was still 13 times greater than 2013.