Busting the AI Bubble Myth: Wall Street’s Perspective

  • Tom Lee of Fundstrat asserts that there is no evidence of an AI-fueled stock market bubble as of now.

  • To illustrate his point, Lee drew a comparison between the performance of Cisco during the dot-com bubble and Nvidia’s current performance.

  • Three compelling reasons indicate that the stock market is not yet in the grip of an AI-fueled bubble.

Suspecting a stock market bubble driven by artificial intelligence frenzy? Think twice, as per the insights from Wall Street’s very own Tom Lee at Fundstrat.

In an exclusive communication to esteemed clients on the first trading day of the week, Lee meticulously elucidated three compelling justifications that refute the notion of the stock market being enveloped in a speculative bubble.

To fortify his stance, Lee adeptly drew a parallel between the current price behavior of Nvidia’s stock and that of Cisco during the notorious dot-com bubble in 2000. It’s an apt comparison, considering Nvidia’s position as a prime beneficiary of the AI upsurge, akin to how Cisco once epitomized the dot-com era with its suite of groundbreaking networking products amidst the internet boom.

“My question to you is this: If AI is in a bubble, you should understand that a 1999 bubble is a more than ten fold increase coming, so be aware,” Lee said. 

Lee cites several additional reasons that lead him to reject the notion of a genuine stock market bubble. One key factor is that six out of the eight mega-cap tech stocks are presently trading below their historical peak values. Moreover, although Apple’s stock has reached new record highs, it stands merely 5% above its previous all-time high, further supporting his argument.

“How do you get a bubble when they’re [mega-cap tech stocks] not even at all time highs?” Lee asked. 

Lastly, as per Lee’s observations, the fund flows unmistakably depict an apprehensive stance among investors regarding stocks, rather than an enthusiastic one. From the conclusion of the previous year until now, cumulative fund flows reveal that investors have injected a substantial $723.5 million into money market funds and $145.6 million into bonds. In contrast, an outflow of $115.1 million has been witnessed from stocks, indicating a cautious sentiment prevailing in the market.

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