The hype surrounding artificial intelligence (AI) has been dominating events on the international stock exchanges for months. Investment expert David Wehner is now warning of an “AI bubble” on the market that is about to burst. Nevertheless, the market expert also found words of praise for the technology.
• Warning of “hysteria” surrounding AI stocks
• Comparison with dot-com bubble
• Long term potential
Trend topic AI
The hype about artificial intelligence (AI) is currently the hot topic on the stock exchange. The high demand for AI solutions was triggered by the chatbot ChatGPT from OpenAI, whose largest donors include the Windows developer Microsoft. But other companies are also benefiting from the AI boom, including the US chip company NVIDIA. Not only does the company provide powerful technology for data centers, it also offers its own AI applications.
Analyst Dan Ives of Wedbush Securities recently praised the market for AI solutions to “CNBC” in the highest tones and even attested the technology to be considered “the fourth industrial revolution”. “That’s what I call a 1995 moment, parallel to the internet. I don’t think this is a hype cycle,” Ives said on Squawk Box Asia.
AI trend has turned into hysteria
But there are also critics of the artificial intelligence trend. These include David Wehner from the asset manager Do Investment, which emerged from the single family office of the entrepreneur Silvius Dornier. As the head of investment revealed in an interview with “WELT”, a real “hysteria surrounding artificial intelligence” had arisen, which in turn had led to a “price bubble”. And Wehner’s prognosis looks bleak: “This AI bubble will burst soon.”
As an indication of such a bubble formation, the portfolio manager sees companies’ names supplemented with the addition “AI” for “artificial intelligence”, the English term for artificial intelligence. Renaming is often enough to boost the price of the corresponding share. A similar approach is the embellishment of sometimes disappointing balance sheet reports with repeated mention of the word AI, which also caused higher share prices. For example, Microsoft’s mere announcement of an AI-based “co-pilot” for the Office packages for 30 US dollars a month drove the Redmond-based company’s market capitalization by 180 billion US dollars. “None of this is healthy,” said Wehner.
Steam engine, railway age, Internet bubble – and now AI?
The investment expert emphasized that AI solutions certainly have the potential to establish themselves in public life, but that similar hypes in the past imploded before they were widely accepted. “That was the case when the steam engine was invented, at the beginning of the railway age or at the turn of the millennium with the Internet bubble,” Wehner pointed out. “Such hypes drive innovation, but after the initial stock market high there is always disillusionment and a price crash.” According to the expert, AI tools should also experience a similar development.
AI boost for economy
Wehner particularly praised the diverse areas of application of artificial intelligence: “AI will find useful applications in many areas, from medicine to the financial sector to the media. And AI will probably also make a certain contribution to economic growth.” Automated processes could not only increase a country’s gross domestic product, but also act as an inflation damper, as the expert recently explained to the “Aktärer”, “because certain tasks that are very stoic and repetitive can then be processed by the AI and we as humans can then devote ourselves to more important tasks.” For example, humanity could turn to challenges such as climate change, which require a certain innovative strength. “An AI can probably not solve that,” says Wehner.
In the current market phase, however, the applications cannot meet the expectations of investors, according to WELT, the head of Do Investment is certain.
Missed window for tech entry
Accordingly, the investment expert vehemently advises against investing in tech stocks. “Sooner or later the stock market will do a reality check and then investors will very critically question the extent to which the exorbitant valuations are really justified,” Wehner said. “A lot of things won’t stand up to this check.” The current market phase is clearly reminiscent of November 2021, when numerous tech stocks were listed at their record levels after the Corona slump and the subsequent recovery phase. Subsequently, however, the tech sector was under pressure due to higher government bond yields and fears of rate hikes in the following year, which should come true from spring 2022. “We have therefore sold all the shares in the seven big technology companies in the last few weeks,” explained the portfolio manager. Accordingly, in an interview with the “Aktärer”, he also advised selling tech stocks like NVIDIA at a profit, provided you got in early.
Bonds as an alternative to stocks
Instead, bonds could be worthwhile, as Wehner revealed to WELT. “There are now decent yields on bonds, including those from companies with good credit ratings. Five-year maturities are 5 to 5.5 percent. That’s above medium to long-term inflation expectations, and it’s also in the close to the expected return on stocks,” he explained, recognizing that stocks were no longer “the only alternative”. If investors still want to remain invested in the stock market, sufficient diversification is the be-all and end-all, as the investment manager emphasized to the shareholder. In general, you should be broadly positioned in the technology and industrial sectors, but also in defensive sectors such as pharmaceuticals or non-cyclical consumption. It could also be worth keeping a “war chest” in order to buy more at a bargain price when the course drops.
In addition, Do Investment’s shopping lists recently included government bonds from Germany and the USA as well as gold and shares from gold mine operators, Wehner told WELT.
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