JP Morgan Thinks There Is An AI Bubble
JP Morgan thinks there is an AI bubble in the stock market right now. They believe that gains in the recent weeks/months have been driven by a small group of companies (mostly AI-related companies) and that the market is overvalued right now. They say that there is “a deeply troubling geopolitical backdrop” and that people will soon realize that the market is overvalued, especially when the Fed raises rates again.
Not to hate on people who are smarter than me, but that’s stupid. First of all: I hate, H A T E whenever someone says that there is a troubling geopolitical backdrop or something like that. It’s too vague, and more importantly, there is always something crazy happening in the world. Unless the Cuban Missile Crisis is happening, or we are actively in a war it doesn’t matter. There is always something “unprecedented” happening in the world. I assume that when they say “troubling geopolitical backdrop” they’re talking about the Russian war with Ukraine. The problem with that is that neither of those countries impacts global markets too much. All I can think of is oil and grain. Neither of those is going to break the S and P. They could also be talking about the US and China continually trying to one9-up each other, but that was also happening during one of the strongest growth periods in our history. They could be talking about the Chinese economy pulling a Japan (90’s edition) and crumbling, but even that won’t shrink our economy too much. China’s economy will still grow, but its expansion will slow. There isn’t any more Covid, so I know they aren’t talking about that. Nothing comes to mind, and I hate them even more for never specifying.
I wouldn’t even say that the market is particularly overvalued right now, but it’s summer when trading volume decreases and markets drift upwards. Combined with a genuinely strong economy, I see no reason why this market should cool off. Employment is at 3.6% (excellent) which is exactly what we want. Even if the Fed doesn’t raise rates again next month (which won’t happen) inflation will continue to cool. We have bottomed out, I would say, a couple of months ago. There is no more reason for pessimism, and usually, I don’t like to play the FOMO card, but the Bears are going to miss out on a significant rally to close out the year. These markets can’t be overvalued, they’ve been beaten down for two years, one small rally over the past couple of months doesn’t cancel that out.
In their last point, JPMorgan does perhaps have a point. While AI certainly does have value for the future, this hype cycle may be a little over its skis. This rally has been concentrated in a few companies, and just a few industries. Primarily chip-centric industries have been the best so far this year. Even companies I hold, like Microsoft, who have loose (but strengthing) ties to AI have been pulled into this whirlwind. I wouldn’t stop buying, and I wouldn’t sell on AI but this may be the first, and smallest, peak on the AI mountain.
