Artificial Intelligence (A)I is the current major them for the markets.
There are two views concerning this technology.
1) AI is a legitimate game-changer that will revolutionize the world, leading to greater productivity.
2) AI is exciting, but the stock market is GREATLY overstating its potential with AI stocks in a bubble.
Perhaps both are true?
For certain, AI-related stocks have been on a tear... the most obvious example is Nvidia (NVDA) which has risen more than SIX FOLD since the start of 2023. It's quite difficult to look at the below chart and not think, "this is outrageous and a bubble."
However, there are several key points worth considering.
NVDA's stock has rallied on investor enthusiasm, but it has also rallied based on legitimate demand for its products. With NVDA shares trading at ~$800, the company is valued at a Forward P/E of 33. That is the SAME valuation NVDA was trading at in 2018, when company's share price was below $100 per share!
Put another way, from a business perspective, NVDA is as cheap today as it was in 2018, before shares exploded higher. So we can't simply look at the chart and say "this is a bubble that will soon collapse."
History provides additional insights here. So let's wind the clock back to the Tech bubble of the late 1990s...
At that time, anything associated with e-commerce or internet exposure exploded higher. However, the REAL money came in the years AFTER the bubble burst as Amazon (AMZN), and other internet market leaders emerged.
See for yourself.
Bear in mind, that initial mania featured AMZN stock rising 10-fold. So this wasn't a small run at the time either... and yet, consider the move that came down the road in the chart above.
So again, find the market leaders and that's where the big money is.
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