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A major discussion point with investors recently has been whether we are in another stock market ‘bubble’ in the world of artificial intelligence. The bullish rebuke on this matter is that we can’t possibly be in a ‘bubble’ when so many people believe we are already in one and it is so widely discussed. There is no consensus on whether the current AI market is a bubble, with many experts pointing to signs of a potential bubble, such as high valuations and investor hype. Others argue that the massive investments are justified by AI’s transformative potential and the real-world infrastructure and profits it is generating, making it different from past speculative bubbles. The market has seen a massive influx of capital, and while there may be winners and losers, some believe the overall investment is necessary and productive, unlike the dot-com bubble. In our view, this entire discussion about whether we are in ‘an AI bubble’ misses the point to a large degree. Whether or not this will or will not end up being defined as a ‘bubble environment’ like that in the late 1990s won’t be known until long after the fact. Just like trying to discern whether an economy is in a recession, by the time it is officially recognized, it is all well in the rearview mirror and no longer relevant for the movement of stock prices. The bigger question investors should be asking themselves today is what the risk-return parameters are around owning stocks right now versus other asset classes such as bonds, hedge funds or cash? On that point we feel strongly that stock market risks are currently skewed to the downside.
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