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Wall Street guru warns AI stocks are in a bubble

James Ferguson, veteran analyst at MacroStrategyargues that the artificial intelligence It’s just an expensive experiment and AI-powered stocks are in a bubble, suggesting that Nvidia could follow the same fate as Intel and Cisco, two stars of the dot-com era.

In a recent episode of Bloomberg’s ‘Merryn Talks Money’ podcast, Ferguson, founding partner of MacroStrategy Partnership, shared his vision on the direction of the financial market and stated that artificial intelligence continues to “unproven” and it is “practically useless.” According to him, only a few AI tools have taken off and Large language models such as ChatGPT cannot yet be trusted, as they sometimes fabricate facts and sources. He also highlighted the high energy consumption required to run these programs.

In the end, it turns out to be something very expensive and that has not yet proven its worth anywhere, outside of some limited applications.“Ferguson said.

The veteran analyst warns of the possibility of a bubble in microchip makers and other AI companies, pointing out that highly concentrated markets with stocks that rely on valuations rising faster than earnings “historically end badly“.

Nvidia: financial market

Ferguson points out that bubbles can attract investors who might not otherwise invest in such stocks. “A lot, a lot of people who think it’s going to end badly also feel compelled to get in,” he explains, citing the dot-com bubble earlier this century as an example. “Almost everyone who wasn’t a retail investor looked at these things and said, ‘This is going to be a bad time.’Well, it can’t last. But if it lasts another quarter and I don’t get in, I’ll lose my job.‘So a lot of people are forced into the later stages of a very concentrated and very expensive parabolic market.’

As for Nvidia, whose valuation has surpassed $3 trillion thanks to a more than 700% increase in its shares since the beginning of last year, Ferguson warned: “The more advanced the technology, the sooner obsolescence will come.” He compared Nvidia to Cisco and Intel, stars during the dotcom boom, but now “they are not even the main players in this boom.” He predicts that in the next big tech bubble, Nvidia is unlikely to be a major player within a decade.

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If the decline is accompanied by a recession, interest rates could fall, thereby boosting asset prices.

To protect against a potential tech bubble burst, Ferguson recommends investors diversify their portfolios away from large-cap U.S. growth stocks. He also suggests looking for opportunities in small-cap indices and emerging markets, as well as alternative assets such as art, classic cars and vintage wines, which could escape future tax increases.

Ferguson concludes that a crash could allow bolder investors to buy quality assets at a low price. If the crash is accompanied by a recession, interest rates could fall, thus boosting asset prices.

Source: Ambito

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