WITH Technology companies and stock exchanges are buzzing amid a fierce race to develop artificial intelligenceone economist warns that the current hype around artificial intelligence has exceeded the dot-com era bubble of the 1990s.
“The 10 largest companies in the S&P 500 are more overvalued today than the 10 largest companies were during the tech bubble of the mid-1990s.” – Torsten Sløk, chief economist at Apollo Global Management, – he wrote in The Daily Spark.
Sløk’s warning comes after chip giant Nvidia became the first semiconductor company to achieve a market valuation of $2 trillion on Friday, driven by the growth of the artificial intelligence industry. Previous week, Nvidia defeated Amazon and Alphabet’s parent Google take the place of the third most valuable company in the US in terms of market capitalization. The company saw its shares drop ahead of fourth-quarter earnings as investors feared the rally had gone too far, but Nvidia beat Wall Street expectations when it reported revenues were up 270% from a year earlier to $22 billion.
“Accelerated computing and generative artificial intelligence have reached a tipping point” – Nvidia founder and CEO Jensen Huang – wrote in the statement. “Demand is growing around the world, across all companies, industries and countries.”
After Nvidia’s results, some investors and… analysts were similarly cautious about what its results mean for the future.
“Nvidia’s next blockbuster quarter raises the question of how long its explosive earnings growth will continue,” said Jacob Bourne, senior analyst at Insider Intelligence. “For the foreseeable future, Nvidia’s market power is strong, although not invincible.”
Meanwhile, a Citigroup study showed that rising share prices are not necessarily a cause for concern.
“The AI bubble is not problematic, and earnings results suggest it is a smaller bubble to begin with,” said a team of quantitative strategists at Citigroup. The group added that if a company’s stock increases by more than 10% on earnings day (in Nvidia’s case, it was approximately on the day the results were announced, it increased by 16%.), then “large-cap companies that have translated well to earnings will continue to perform very well over the next three months.”
