The recent flurry of AI deals, creating increasing interdependencies among some of the world’s largest AI players, is bringing back memories of the dot.com bubble. The key question in investors’ minds is whether we are now facing an AI bubble. The second derivative of the same question is whether we have reached a peak in equity markets overall, after a remarkable run. In our opinion, as is often the case, the answer’s not straightforward.
Is anyone swimming naked?
- The recent flurry in AI deals is fuelling speculation of an AI bubble and prompting investors to ask if we’ve reached a peak in equity markets.
- For now, there are no clear challenges to companies’ earnings, which are the real drivers of risk markets, but we need to stay watchful. Tariffs may not be the prevailing narrative, but that doesn’t mean their impact will disappear. Localised credit episodes are contained but need to be monitored.
- Undoubtedly, there are pockets of excessive exuberance and inflated expectations, but the rerating in markets has often been driven by a handful of stocks as index concentration remains high. There are plenty of stocks that still have meaningful upside potential.
- Importantly, when conclusions appear to become almost obvious (Do we have a bubble? Of course!!!), that is the time for investors to seek dissent, to find those around them who think differently and listen to the logic behind their opinions.
- There is always someone swimming naked but, when the tide goes out, there will still be more than a few who have their costumes firmly on.
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