AI Bubble Fears May Be Overstated

Investors’ enthusiasm for artificial intelligence (AI) equities remains undaunted. Consider the following point courtesy of Wall Street Journal financial columnist James Mackintosh.

In May, Apple (AAPL), Alphabet (GOOG), Microsoft (MSFT) and Nvidia (NVDA) added more market value than the rest of the S&P 500 combined. That speaks to high levels of market concentration. But that trend has also been good news for investors owning the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM). Those funds allocate approximately 30% of their portfolios, which are identical, to that quartet of stocks.

AI ebullience is still mostly confined to a smaller number of stocks. So questions are reappearing about concentration levels in supposedly broad indexes. And bubble fears are increasing, too. For example, some naysayers assert Nvidia is trading at valuations reminiscent of the 2000 tech bubble. On the other hand, some market observers believe those bubble fears aren’t all they’re purported to be.

Assessing Specter of AI Bubble

For investors considering AI-heavy assets such as QQQ and QQQM, bubble talk shouldn’t be dismissed. But it also pays to examine the details.

“One scenario: Demand for Nvidia’s high-end graphics processing units falls because AI is overhyped and has yet to live up to its promise. In other words, demand will turn out to be a bubble and that bubble then bursts—as bubbles, by definition, always do,” noted James Pethokoukis of the American Enterprise Institute.