Investment leader issues AI caution

12/19/2024 6:21:42 AM

(MENAFN) Vanguard, a major American asset management firm, has cautioned that the current investor enthusiasm for AI-related stocks may be overestimating the technology's short-term impact, warning of a possible market correction. According to the financial Times, Vanguard’s chief economist Joe Davis believes that the stock market's surge, led by AI stocks, is built on unrealistic expectations. While AI has become a key driver of the S&P 500's 27% increase this year, with companies like Nvidia seeing substantial gains, Davis argues that share prices in tech and communication sectors are too high compared to expected profit growth.

Davis compared the current market to the PC boom of the 1990s, noting that while AI could eventually be more impactful than personal computers, the market is pricing AI’s potential too aggressively, with a 90% probability priced in, while Vanguard estimates a more cautious 60-65% chance. Davis cautioned that the stock market may be heading toward a bubble, similar to the telecom crash of 2000. He also pointed out that while AI may transform industries in the future, the real profit winners could be companies that apply AI, such as hospitals and financial services, rather than those solely focused on AI technology.

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