With tech companies and stocks buzzing amid a tight race in AI development, one economist is warning that the current AI hype has surpassed the 1990s dot-com era bubble.
“The top 10 companies in the S&P 500 today are more overvalued than the top 10 companies were during the tech bubble in the mid-1990s,” Torsten Sløk, chief economist at Apollo Global Management, wrote on The Daily Spark.
Sløk’s warning comes after chipmaking powerhouse Nvidia became the first company in the semiconductor industry to reach a $2 trillion market valuation on Friday, driven by the boom in the AI industry. The previous week, Nvidia beat out Amazon and Google parent Alphabet to take the spot for third-most valuable company in the U.S. by market cap. The company saw its stock dip before fourth-quarter earnings as investors worried the rally had gone too far, but Nvidia beat Wall Street expectations when it reported revenues had increased 270% from the previous year to $22 billion.
“Accelerated computing and generative AI have hit the tipping point,” Nvidia founder and CEO Jensen Huang said in a statement. “Demand is surging worldwide across companies, industries and nations.”
After Nvidia’s earnings, some investors and analysts were similarly wary about what its performance means for the future.
“Another blockbuster quarter from Nvidia raises the question of how long its soaring performance will last,” said Jacob Bourne, a senior analyst at Insider Intelligence. “Nvidia’s near-term market strength is durable, though not invincible.”
Meanwhile, a study from Citigroup found the stock rally isn’t necessarily something to worry about.
“The AI bubble is not in trouble, and, if anything, earnings performance suggests that it is less of a bubble to begin with,” a team of quantitative strategists at Citigroup said. The group added that if a stock is boosted over 10% on an earnings day (Nvidia’s was up 16% on its earnings day), then “those large-caps with strong performance into earnings continue to perform very well for the next three months.”