Analysts Caution: Signs of a Stock Market Bubble Are Emerging
Perhaps you remember how the economic recession fears followed dot-com bust in 2001. Or more importantly the housing market crash in 2008.
In both instances there was a surge of excitement about new ideas -- like the advent of the internet as well as the growth of mortgage-backed securities and their complicated derivatives caused investors to pump huge amounts into markets. This led to two massive speculation stock market bubble that eventually burst and spewed out economic turmoil, caused a lot of pain.
It's the time to look into that the 3rd major bubble in this century - the A.I. bubble.
Although it's difficult to tell what the future holds, the indicators are not difficult to spot. Artificial intelligence investment has reached a new high that venture capital companies alone pumping nearly $200 billion into the sector this year. In the same way the investments in data centers have quadrupled in the last decade, and will continue to do so until 2022.
In terms of financials bubbles are created when investment risks get more distant from the actual earnings that an the asset could actually produce. Investors are always betting on the future of their investments, but bubbles are created when optimism economic warning prudential thinking. It happens when large number of investors continue pumping cash into an asset without any concern for its future profits or long-term the sustainability of the asset.
Stock market trends of A.I. investments seems to match this description. Consider OpenAI as an example. The company has announced that it needs at the very least 1 trillion dollars to pay for the data centers needed to power, train and maintaining its advanced A.I. systems. But, the expected revenues for the year are around 13 billion dollars. In the meantime, since the start of ChatGPT in the latter half of 2022, in the last year, S&P 500 has grown by nearly two-thirds.
The market analysis draw comparisons and contrasts with prior speculation-driven booms. Today, the indexes like those of the S&P 500, Nasdaq and Dow Jones continue to reach record-breaking levels. In fact, the S&P 500 as well as Nasdaq both hit new highs on Thursday, gaining around 15 percent respectively.
