Why You Don’t Have to Fear an AI Bubble

Last Updated: 6. Februar 2024By

Over the weekend, a reader of Lehne’s MegaTrends wrote to me expressing their fear of a AI bubble. Are we already in such a bubble?

My response: No, not in my opinion. A bubble is something that builds up over years and eventually leads to absurdly high valuations. We are far from that.

The increases in AI stock prices are largely supported by fundamentals. Even though some valuations have recently expanded, the majority of gains in AI stocks are supported by fundamental developments.

For example, on Friday, Meta’s stock shot up +20%. My readers were able to realize a fantastic profit of +167% yesterday with a Meta call option.

This was due to strong numbers from Thursday: Meta’s revenue increased by +25% compared to the same quarter last year, net profit tripled! Margins are also increasing, a new share buyback program was approved, and Meta will now pay dividends.

While the stock may no longer be the bargain it was a few months ago, when considering the current valuation in relation to the tremendous growth rate, I still see Meta as fairly valued.

+72% annual AI growth is the basis of the AI rally This also applies to many other stocks in the field of artificial intelligence. UBS estimates that global AI revenue will grow by 72% annually until 2027. Anything other than a massive rally in the involved stocks would be completely illogical in such an environment.

Mark Zuckerberg’s statements during Meta’s earnings call also highlight this trend. He said he wants to develop a General Artificial Intelligence and is investing heavily in infrastructure. This, in turn, is the growth driver for AI infrastructure providers like Nvidia.

Not a bubble, but short-term overvaluation My readers of Lehne’s Megatrends are benefiting greatly from this trend, as I have positioned my portfolios early on this huge megatrend. However, this does not mean that you should become overconfident if you have similar gains in your portfolios.

While I do not see a bubble, the US markets are overvalued in the short term. I have already pointed this out in my annual outlook, and since then, the situation has only worsened as the markets have continued to rise.

Therefore, it is important to remain disciplined, take partial profits, and hold some hedges in leveraged portfolios.