When it comes to being a successful investor, you’ll often hear us talk about the importance of blocking out the noise created by daily news headlines.
However, with so much talk about an AI bubble and stock market correction, we know this is easier said than done at the moment.
What is a bubble?
A bubble is when stock prices keep rising beyond the fundamental value of a company; if the bubble bursts, prices drop sharply.
So, are we in an AI bubble?
Well, it’s a little too early to say.
On one hand, AI technology is constantly improving, with its ever-growing ‘list of use’ cases increasing widespread adoption at a blistering pace.
Driven by the strong earnings and transformative potential of AI’s top companies, there’s no ignoring the fact that the S&P 500 has enjoyed a number of new highs in recent months.
And, with companies indirectly linked to AI also seeing their share value increase, it’s easy to see why some view this surge as just the start of a new market boom.
On the other hand, it’s just as easy to see why some investors are perhaps nervous, what with small patches of weaker economic data, US-China trade tensions, and the ongoing threat of fresh tariffs.
Coupled with AI-based spending and valuations at record levels, concerns naturally lead to this trend being seen as a potential case of short-term overheating.
Wasn’t there a similar bubble in the late 90s?
Yes, although this isn't a direct repeat of that dot-com bubble.
The profitability of today’s big tech companies is completely different to that era, with profits allowing companies to reinvest into developing and improving their offerings.
Ok, but what does this all mean for my investments?
Whether AI’s impact is more transformative than the introduction of electricity or the internet (as some have suggested) remains to be seen. It’s about the scale, depth, and reach of its potential impact.
But with ChatGPT hitting 800m active weekly users, one thing is certain: AI is here — and it’s here to stay.[1]
And because all Wealthify Plans have varying degrees of exposure to the seven companies most involved with AI (aka the Magnificent Seven), it’s a really important discussion.
With opinion split on this being a bubble, however, we’ll leave the last word with our Chief Investment Officer, Jessie, who emphasises the importance of the common ground.
“The most important thing investors do agree on is being aware of the different scenarios that might play out — and having a plan for each. If the bubble does burst, for example, it could provide the chance to buy these AI stocks at cheaper prices.
“At Wealthify, our strategy for protecting your money at times like this is simple: maintain a long-term view that focuses on data and the bigger picture, not the everyday noise.
“Regardless of the eventual outcome, Wealthify Plans are globally diversified to protect against extreme volatility, whilst remaining versatile enough to take advantage of any new opportunities.”
— Jessie Kwok, Chief Investment Officer @ Wealthify
With investing, your capital is at risk, so the value of your investments can go down as well as up, which means you could get back less than you initially invested.
Wealthify does not provide advice. If you’re not sure whether investing is right for you, please speak to a financial adviser.
