An A.I. Stock Bubble? Or A Stabilizing Economy? - Free Websites, Share News And Posts Publicly

MON, JUN 19, 2023

Is the Stock Market in an A.I. Bubble?

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The S&P 500 closed above 4,400 Thursday, and the Nasdaq above 13,750, taking both to levels they haven’t seen since spring of 2022. Is it because of an A.I. bubble? Or because the economy is showing signs of stability? Jon Fortt is here to weigh in.

JON:

“It’s clearly an artificial intelligence bubble that’s taken us to these heights.

The S&P 500 is up 16% in 2023, and the Nasdaq is up twice as much. Without a doubt, the poster child of that run is Nvidia, which has basically tripled.

I’m not taking anything away from Nvidia itself, which is the only company that showed billions of dollars of revenue upside from AI mania this past earnings season. But does the rest of the S&P and Nasdaq deserve to have run up this much? No. Look at the other big, megacap stocks besides Nvidia. Four of them — Alphabet, Amazon, Meta and Microsoft — mentioned AI more than 165 times combined in the last round of earnings calls. These are some of the same huge stocks that have historically high concentrations in the S&P and Nasdaq 100. They’re all up more than 35% in 2023, leading this year’s big surges.

Nvidia aside though, it’s just too soon to model how AI might add to these companies’ bottom lines. But that hasn’t stopped investors from snapping them up on AI hopes, and pushing the S&P and Nasdaq 100 higher in the process.”

It’s not all A.I. hype, though. The Fed did just pause with rate hikes.

JON:

“On the other hand, an A.I. bubble isn’t the main thing driving the market’s gains.

It’s cooling inflation, that debt ceiling deal, functioning regional banks, a Fed pause, a resilient consumer, and several other indications that the looming economic disasters we feared for months? They might never come.

Now, more than at any moment since the market started really tumbling in 2022, we can imagine a somewhat normal post-COVID world where throngs of people go to pop concerts without masks on, Vladimir Putin hasn’t annexed all of Eastern Europe, and a Mediterranean restaurant chain can find enough workers that it can stage an IPO with a straight face — much less see shares double the first day.

Artificial intelligence is a factor here, but not because an AI bubble is powering markets. It’s because it took ChatGPT — an amazing demonstration of American innovation from a startup — to shake investors free of the dumb idea that tech isn’t worth investing in anymore, unless the company’s already profitable. The market’s up mainly because of signs of stability and intelligence. Nothing artificial.”

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*Why LinkedIn? On the Other Hand is about civil debate that illuminates the relevant facts. We’ve found that LinkedIn does a good job fostering that kind of environment.

On the Other Hand is Jon Fortt’s weekly segment on Squawk Box, Thursdays in the 7 a.m. ET hour. He’s been writing it just about every week since August 2020. The second (or first) argument each week isn’t necessarily the one Jon agrees with. He just makes an honest effort to construct the best argument he can for each side.

When he’s not debating himself, Jon co-anchors Overtime at 4 p.m. alongside Morgan Brennan. Jon also researches and writes the weekly Working Lunch segment on Power Lunch, Fridays in the 2 p.m. ET hour, where he introduces viewers to founders and CEOs through their origin stories and strategic goals.