AI Stocks Have Room to Grow Without Bubble Concerns

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AI stocks are still far from reaching bubble territory, despite recent market fluctuations, according to a recent article in Barron’s. While the S&P 500 index fell 1.4% last week, it is still up 13% in 2021. The gains have been largely driven by the big seven tech stocks of Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta Platforms, which have risen a market cap-weighted average of 25% since the Nasdaq began its run eight weeks ago. However, even after last week’s drops, three of the seven finished the week higher than the S&P 500.

According to Fundstrat’s head of global portfolio strategy, magnificent seven stocks have cut costs to start the year and earnings projections for 2023 and 2024 have risen by 7% and 6%, respectively, over the past few months. While AI is considered a coming tailwind, stock prices have yet to reflect this potential. For instance, Microsoft is only back to where it was trading in late 2020, which is likely a reflection of current fundamentals rather than AI optimism, says a portfolio manager at Integrated Alpha.

Investors are advised to watch for silly acronyms and novel valuation techniques to pop up. During the dot-com boom, the trend was investors placing more emphasis on eyeballs and clicks than on actual earnings and earnings growth. According to Barron’s, further exuberance around AI would be reflected in the appearance of a new valuation methodology or AI metric.

While the AI revolution may not live up to investors’ expectations, Barron’s says that tech doesn’t need to reach full potential to continue performing well. With inflation persisting, the Fed may continue to raise interest rates. This suggests that overweighting banks and energy should be avoided, with tech stocks likely to do well in this environment, according to Fundstrat’s head of global portfolio strategy.

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Frequently Asked Questions (FAQs) Related to the Above News

Are AI stocks in bubble territory?

No, according to a recent article in Barron's, AI stocks are still far from reaching bubble territory, despite recent market fluctuations.

What have been the primary drivers of the S&P 500 index's gains?

The gains have been largely driven by the big seven tech stocks of Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta Platforms, which have risen a market cap-weighted average of 25% since the Nasdaq began its run eight weeks ago.

Have the earnings projections for AI stocks risen recently?

Yes, according to Fundstrat's head of global portfolio strategy, earnings projections for 2023 and 2024 have risen by 7% and 6%, respectively, over the past few months.

Are AI stocks currently reflecting the potential of AI technology?

No, AI stock prices have yet to fully reflect the potential of AI technology. For instance, Microsoft is only back to where it was trading in late 2020, which is likely a reflection of current fundamentals rather than AI optimism, according to a portfolio manager at Integrated Alpha.

What should investors watch out for in terms of valuation techniques?

Investors should watch for silly acronyms and novel valuation techniques to pop up. During the dot-com boom, the trend was investors placing more emphasis on eyeballs and clicks than on actual earnings and earnings growth. Further exuberance around AI would be reflected in the appearance of a new valuation methodology or AI metric.

Will the tech sector continue to perform well in the current market environment?

Yes, with inflation persisting, the Fed may continue to raise interest rates. This suggests that overweighting banks and energy should be avoided, with tech stocks likely to perform well in this environment, according to Fundstrat's head of global portfolio strategy.

Please note that the FAQs provided on this page are based on the news article published. While we strive to provide accurate and up-to-date information, it is always recommended to consult relevant authorities or professionals before making any decisions or taking action based on the FAQs or the news article.

Meera Mehta
Meera Mehta
Meera is our dedicated writer and manager for the AI Stocks category. With her expertise in finance and a deep interest in the AI industry, Meera keeps a close eye on AI-related stocks and market trends. Her articles provide valuable insights into the financial aspects of AI, helping investors navigate this exciting and dynamic sector.

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