Those betting on AI technology are counting on it to skyrocket productivity and deliver huge profits for the companies that use it, fueling a growing debate about whether AI stocks deserve their sky-high valuations or are doomed to crash.
Paul Dietrich, Wedbush's chief investment strategist, warns that the artificial intelligence boom is a bubble. He told Business Insider that this bull market reminds him of the hype and speculation of the dot-com bubble of the late 1990s and the real estate bubble of the mid-2000s. “It didn't make any sense,” he says. “The stock just kept going up and up and up,” he adds.
He also suggested where investors can seek refuge today.
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Dietrich recalls the times of the Internet bubble in an interview with BI: – I was going to a party and everyone was telling me about some dot-com stock they had just bought – he says. He adds that exactly the same thing is happening today
Nvidia shares have increased approximately thirteenfold since the beginning of 2023, bringing the chipmaker's market capitalization to $4.5 trillion. This value exceeds the combined value of Berkshire Hathaway, JPMorgan, Walmart, Eli Lilly and Visa.
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Valuations “detached from reality”
Dietrich, who manages money for private investors, institutions and pension funds, said believes AI will “change everything,” but added that valuations are “out of touch with reality.”
– People think there are no limits, but they always exist – he emphasizes. He adds that blue chips such as Microsoft were hit hard when the dot-com bubble burst. Shares of the enterprise software giant fell 63%. in 2000
He also mentions that he is concerned that retail investors are using borrowed money to make bigger and riskier bets to increase their profits.
“More and more people are investing in leveraged ETFs, especially technology ETFs,” he says. – We have never, ever seen a big market decline with the level of leverage that I see in the background of stock purchases. This is my biggest concern at the moment, he emphasizes.
– If the market starts to fall, you will have to withdraw from such things very quickly – he adds.
Dietrich said the government's injection of trillions of dollars into the economy over the past five years could have sustained demand and staved off problems.
“It postponed the recession, but it didn't invalidate the law of gravity,” he says.
Where to invest if AI is a bubble
Dietrich predicts that vast AI-enabled data centers will become a “commodity business” and their manufacturers will become “future utilities” and will be more like AT&T than Apple.
These centers require huge amounts of energy and water to operate. That makes the utilities sector “probably one of the best investments for the long term,” the analyst says. Especially since they can change energy sources as needed, and regulators make sure they earn sufficient profits.
“Just invest in a utility company because it will get a guaranteed return,” he argues, calling it a “quasi-bond” because it pays large and stable dividends.
Dietrich also says investing in gold “makes sense” after its price topped $4,000 this week. hole. per ounce for the first time in history. He adds that all his clients have at least 25 percent. their portfolios invested in precious metal.
The financial guru says he is also bullish on gold because he believes the US government is trying to devalue the dollar to make exports more competitive and reduce the real value of the national debt, making it easier to repay.
Gold may also be a good hedge against the acceleration of inflation caused by tariffs, he adds.
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Important: the information and parameters contained in the text are for information purposes only and do not constitute a recommendation to buy or sell financial products. It is worth prioritizing investment decisions with your own analysis of risk and financial situation.
The above text is a translation from American edition of Business Insider
