An AI (Artificial Intelligence) sign is seen at the World Artificial Intelligence Conference (WAIC) in Shanghai, China July 6, 2023.
Aly Song | Reuters
Market participants are excessively confident about their ability to accurately predict the long-term effects of artificial intelligence, according to Mike Coop, the chief investment officer at Morningstar Investment Management.
Despite a recent pullback, optimism regarding AI’s potential to drive future profits has propelled the tech-heavy Nasdaq Composite to a year-to-date gain of over 31%, while the S&P 500 has risen by more than 16%.
Some analysts have raised concerns about the possibility of a bubble forming, given the concentration of market gains in a small number of large tech stocks. Nvidia stock has surged 190% this year, Meta Platforms (the parent company of Facebook) has risen over 154%, and Tesla has increased by 99%.
“If you look back at what’s happened over the last year, you can see how we’ve arrived at this situation. We witnessed the release of ChatGPT in November, along with significant AI investment announcements from various companies and Nvidia’s impressive performance in May,” Coop explained during an interview on CNBC’s “Squawk Box Europe” on Friday.
“Additionally, we’ve become more aware of the rapid advancements in generative AI, which has captured the public’s imagination and led to this incredible surge.”
In a recent research note, Morningstar drew parallels between the concentration of high valuations and the dotcom bubble of 1999. However, Coop emphasized that the current rally differs due to the prominent companies involved being “established giants with major competitive advantages.”
“All of our company research suggests that the successful companies this year possess a form of a moat, are profitable, and have sustainable competitive advantages. This contrasts with the speculative nature of many companies in 1999, providing a more solid foundation,” Coop clarified.
Nevertheless, Coop warned that the market’s excitement over AI has led to overconfidence in predicting its impact. He compared the unpredictable long-term effects of AI to past technological revolutions like electricity, steam engines, and the internet.
“Winners can emerge from unexpected places. Google is a perfect example of that. Therefore, people have become overly enthusiastic, resulting in a highly concentrated market focused on a similar theme,” he added.
Coop cautioned investors about paying excessively high prices and placing heavy bets on AI’s potential without considering the inherent unpredictability of technological progress. He assigned a level of danger to the current situation and stressed the importance of portfolio diversification and being aware of valuations.
He advised investors to seek stocks that can protect against recession risks and offer good value by pricing in a worst-case scenario. Additionally, Coop highlighted the attractiveness of bonds compared to 18 months ago.
“Don’t underestimate the price being paid for the promise of AI’s impact on individual companies,” Coop concluded.
Correction: This story was updated to reflect that the Nasdaq Composite has gained 31% year-to-date at the time of writing.
Denial of responsibility! VigourTimes is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
