The hype about artificial intelligence has long since reached the financial market. Investors are looking for sector winners and are increasingly buying into companies with an AI focus. SkyBridge Capital founder Anthony Scaramucci warns of a bubble – but at the same time advises bringing some industry representatives into the depot.
• Hedge fund manager sees bubbles forming in AI stocks
• In the long term, however, AI shares are a deposit option
• Patience is the key
AI stocks will be among the most coveted on the stock market in 2023. This also becomes clear when looking at the price development of some titles: NVIDIA shares have gained almost 190 percent over the course of the year to date. AMD was up 76 percent, while C3.ai was up 225.6 percent year-to-date.
AI shares: Scaramucci warns of bubble formation
However, the hype surrounding AI titles also brings warnings. Most recently, Anthony Scaramucci, the founder of SkyBridge Capital, spoke cautiously to BNN Bloomberg Television in Toronto about the sector hype. “There are boom-bust cycles. AI is probably in a bubble,” says the market expert. “However,” he added, “there are some quality AI out there that are worth owning.”
AI as a long-term investment
Despite a potential bubble formation, investors should therefore put AI stocks in their portfolio – if they hold them for the long term. Patience is key, according to Scaramucci, who simultaneously referred to the days when the internet was enjoying early success and internet stocks were among the biggest winners in the market. “I’ve owned Amazon for the past 25 years. At every point in its history, it’s been a terrible or wonderful investment. But when you take a step back, it’s actually a wonderful investment.”
He referred in particular to the current best-known AI share. Chipmaker NVIDIA’s stock may be overvalued at the moment, according to the hedge fund manager. “But if you own them for the next 15 years, they’ll probably do just fine.”
Other experts also warn of bubble formation
Scaramucci is not alone in his concern that AI stocks are about to bubble. Bank of America experts recently warned against an overvaluation at NVIDIA & Co. BoA expert Michael Hartnett sees the current interest rate environment in particular as a stress factor and advises stock market strategists to exit. There is still a “baby bubble” surrounding AI stocks, but in the past such bubbles always started with “cheap money” and then ended with interest rate increases, the stock market strategist’s team recalled around 1999, when a rally in internet stocks was abruptly ended by interest rate hikes. Many projects in the tech industry are credit-financed, so rising interest rates are clouding the chances of success.
James Penny, Chief Investment Officer of TAM Asset Management, also believes that the dot-com phase could be repeated. The investor recently told Bloomberg: “Companies that even mention the word AI in their earnings are seeing their share prices rise, and that smells strongly of the dot-com era.” The market currently seems to have reached its limits. “I see a higher possibility of things going down from here,” continued Penny.
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