The high demand for AI stocks has raised concerns about a possible bubble, as many investors are pumping funds into AI technologies. However, renowned economist Jeremy Siegel believes it’s not yet time for a bubble.
Investors are placing big bets on the potential for artificial intelligence (AI) as the technology continues to boom. While some have expressed concerns about a possible bubble forming in the AI market, Jeremy James Siegel, a renowned economist, and Russell E. Palmer, professor of finance at the Wharton University of Pennsylvania, remain optimistic, stating that it is not a bubble yet.
In an interview with CNBC on Monday, Siegel disclosed that the current situation differs from the dot-com bubble of the late 1990s, referring to a period between 1995 and 2000 when investors bought stocks of internet-based startups hoping for high returns but were met with market failures instead.
The Wharton professor said that he has been getting questions about whether the increased interest in AI would lead to a repeat event of the dot-com bubble.
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Siegel believes that the current excitement around AI is driven by two things: the interest in the technology and the success of companies like Nvidia, a leading provider of AI chips. Nvidia, an American-based multinational tech firm, recently reported blowout earnings in the just-concluded quarter. This caused its shares to rally by 24% and reach an all-time high.
The demand for Nvidia’s chips in AI applications has been skyrocketing, driving the company’s market capitalization close to $1 trillion. During the earnings call, Nvidia’s CEO, Jensen Huang, confirmed the surging demand for their data center products. Year-to-date, Nvidia shares have surged by an impressive 166%.
While the Wharton professor acknowledges that Nvidia shares may be slightly overvalued in the long term, he emphasizes that momentum can carry stocks far higher than their fundamental value in the short term, noting that predicting how high these shares might go is difficult.
″[In the] long term I would say that [Nvidia shares] were probably slightly overvalued. But for the short term, we know momentum can carry stocks far higher than their fundamental value, and no one can predict how high they might go,” Siegel said.
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Since the launch of ChatGPT, a generative AI chatbot designed by OpenAI in November last year, interest in such technologies has skyrocketed, causing panic that AI might replace humans.
Companies like Adobe and Activision Blizzard have recently joined the AI bandwagon to empower human creativity.
Earlier this month, Adobe introduced its “Generative Fill” AI to support graphic designers using Photoshop to create unique content. Like Adobe, Blizzard also plans to launch an image-generating system to assist humans.
In April, e-commerce giant Amazon announced the launch of its “Amazon Bedrock”, which offers Amazon Web Service (AWS) users the opportunity to build their own generative AI technologies using its foundation models (FMs).
The company aims to make AI development more accessible by providing a secure online service that enables corporate entities to create their own applications.
Amazon claims that the new service can run AI software more effectively and affordably than other competitors, aiming to make AI technology available to a broader range of businesses.
In addition to Amazon Bedrock, the e-commerce giant has incorporated AI into its platform to improve its delivery speed. The new tool will assist shoppers in locating the nearest warehouse with the products the customer needs.