Macroscope | 4 reasons fears of an AI-fuelled stock market bubble are overdone
While many believe the stock market is in an AI-induced bubble, there are factors that paint a more optimistic picture
More strikingly, just 10 companies account for over half the rise in the value of US stocks. The upward revision to earnings growth for the S&P 500 next year is entirely attributable to the “Magnificent Seven”, the group of leading US technology firms. Earnings expectations for the rest of the 493 companies in the index have not budged, denoting “an extreme degree of concentration in the S&P 500”, said Torsten Slok of Apollo Global Management.
According to Societe Generale, the top 10 stocks account for a third of the S&P 500’s earnings and a fifth of the MSCI World’s profits. “Such concentration might look impressive on paper, but it comes at a steep price: the erosion of diversification, leaving portfolios increasingly exposed to a narrow slice of the market’s fate,” Societe Generale said.
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Nvidia CEO Jensen Huang praises China’s AI progress following chip sales approval
Some investors admit that the surge in investment in AI has created a bubble, typically defined as a phase marked by a dramatic escalation in asset prices whereby valuations become detached from the realistic prospects and earnings power of the assets in question.