 "Market veteran who predicted dotcom bubble says another bubble, fuelled by AI, is on the way")
With the roaring boom that AI and its ancillary industries are seeing right now, it is difficult for tech enthusiasts and investors to believe that this might be a repeat of the infamous dotcom bubble that popped in 2000. However, a seasoned market veteran, Jeremy Siegel, believes that’s exactly where we are headed.
Siegel, who previously warned of the dotcom bubble in 2000, has found similarities in market behaviour leading to the crash in his weekly column. However, he also acknowledges the difficulty in predicting precisely when such speculative bubbles might burst.
He believes that while the stock market isn’t yet in a bubble, there are signs of potential trouble ahead, particularly with the surge in tech stocks driven by excitement over AI advancements.
Siegel has been a finance professor for over 45 years, and just retired from Wharton, one of the top-most business schools in the world, just last week.
Siegel highlights the remarkable ascent of semiconductor stocks, often regarded as key players in the AI revolution, as indicative of bubble-like activity. Notably, the iShares Semiconductor ETF, which tracks US-listed chip stocks has soared by over 57% in the past year alone.
“It is impossible to tell whether semiconductors’ action today is akin to 1997–98 and the internet—or more like 1995, like tech bulls think. Or 2000, like bears think,” he wrote.
Impact Shorts
More ShortsDrawing parallels to the dotcom era, Siegel raises concerns about whether the current trajectory of chip stocks resembles the early stages of the internet boom or the eventual crash.
One of the companies that has done really well with the boom in AI, has to be NVIDIA, which hit a market cap of over $2 trillion earlier last week. But is it overvalued?
“I do not think NVIDIA is dramatically over- or under-valued. This has been a special company, and this is a special time when the demand for semiconductors is seemingly unlimited as the strong investment cycle is supporting chips and training new artificial intelligence (AI) models,” he said.
While Siegel acknowledges that tech stocks are pricey, he attributes this to substantial earnings growth. Despite some analysts’ concerns, Siegel defends Nvidia’s remarkable rise, citing the company’s significance in meeting the growing demand for semiconductors and powering AI advancements.
Siegel’s cautious optimism aligns with sentiments from billionaire entrepreneur Mark Cuban, who recently stated that the current market differs significantly from the dotcom bubble era. Cuban points out that the valuations of major tech firms are relatively lower now compared to 2000.
However, Siegel warns investors to brace for a potential downturn in tech stocks, emphasizing the importance of focusing on long-term investment strategies.
“The momentum of tech stocks will run dry eventually. In a run such as this, the saying is ‘Stairs up, elevator down.’ And that elevator ride can be quite swift,” said Siegel.
He cautions against attempting to time market exits, as the rapid decline following a speculative surge can catch investors off guard. Despite the looming risks, Siegel underscores the potential rewards for those who navigate the market wisely during times of bubble expansion.
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