Investors are twitchy about an AI-fuelled market bubble.
“The AI bubble looks real” (New York Times), “What could burst the AI bubble?” (RTÉ), “The AI valuation bubble is now getting silly” (Guardian) – alarming headlines are everywhere right now.
It’s not just headline writers. More than half of investors in Bank of America’s latest fund manager survey believe AI is in a bubble, saying it is the biggest tail risk facing global markets. Both the International Monetary Fund (IMF) and the Bank of England have flagged valuation concerns.
JPMorgan chief executive Jamie Dimon says “some asset prices” are “in some form of bubble territory”. Stocks are “fairly highly valued”, says Federal Reserve chairman Jerome Powell, echoing Alan Greenspan’s famous warning about “irrational exuberance” during the dotcom bubble.
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However, investors should be cautious about being over-cautious, says Bespoke Investment. It notes Greenspan uttered his warning in 1996, but stocks continued soaring until March 2000.
This is not an isolated example, with history confirming “strong bull markets can get much stronger and last much longer than anyone can imagine”.
[ The Irish Times view on the AI bubble: Ireland at risk if its burstsOpens in new window ]
There are always good reasons to be cautious, says Bespoke, but getting out at the top is a fantasy. Investors should “remember that history has been harsher on sideline-sitters” rather than on disciplined investors who resist the temptation to jump in and out of the market.
That’s echoed by Morgan Stanley. Correction fears are normal, but bull markets “are meant to be ridden, not timed”.
