Artificial intelligence (AI) stocks and mega-cap tech stocks were standout performers in 2023. Investors are flocking to some stocks, excited about the next big growth story.
As an evaluation such as Nvidia and Tesla It seems more and more detached from reality, but just like 2021, echoes of the dot-com bubble are reappearing.
Now I can hear the bulls yelling. “This time it’s different!” No, I don’t think so. As the old saying goes, the bigger they are, the harder they are to fall.
Megacap vs Others
US indices outperformed other indices, FTSE100 In 2023, it becomes even more apparent that this rally is driven by a handful of stocks.
The following chart shows a breakdown of the year-to-date performance of some of the most popular stocks. Nvidia is leading the way, and the price has tripled.of NASDAQ Compositeincluded the names of all megacaps and was up 33%.but S&P500 Only 16% higher.
Source: Trading View
Digging deeper and analyzing a wider range of Russell 2000 Indices that include small-cap stocks have performed flat year-to-date.
small caps and NASDAQ 100 It’s growing bigger and bigger. In fact, what’s interesting is that the ratio between the two is now at the same level it was at the peak of the tech bubble in the early 2000s.
History doesn’t repeat itself, but it rhymes
I have no doubt that AI will deliver on all its promises and make the internet and online retail as revolutionary as it was heralded 25 years ago. But would that make you buy a product like Nvidia today?
In 1999, Amazon It prophesied the internet shopping revolution ushering in a new era. If I had bought the stock at its peak and held it for 24 years, I would be a millionaire by now. But that would be a very big “what if”.
By the end of 2001, the stock had lost 95% of its value. I would have had to hold the stock for another 10 years to reach breakeven. And let’s not forget that Amazon is one of the few winners to emerge from the tech crisis.
Identify AI Winners
Like Amazon a quarter century ago, identifying a truly transformative AI company is like looking for a needle in a haystack.
Going back to the 90’s, intel, Cisco, Oracle and AT&T Contributed to building the Internet.But it was a startup like Google and FacebookCompanies with innovative business models were the final winners.
I am convinced that most of the leaders of the previous cycle will not be the leaders of the next cycle. It simply doesn’t work that way. Tomorrow’s leaders will be companies that apply AI technology in new and disruptive ways.
I admit that this rally in tech stocks could last even longer. But that would only increase the risk even further. For now, I’m looking for a place where I can invest my hard earned money.
This post leaves no doubt: AI stocks are in a bubble, first appeared on The Motley Fool UK.
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Randy Zuckerberg is the former head of market development and public relations at Facebook, the sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Fry is a member of the Motley Fool’s board of directors. John McKee, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Andrew McKee has no positions in any of the stocks mentioned. The Motley Fool UK recommends Alphabet, Amazon.com, Meta Platforms and Nvidia. The views expressed about the companies mentioned in this article are those of the writers and may differ from the official recommendations we make on our subscription services such as Share Advisor, Hidden Winners and Pro. At the Motley Fool, we believe that considering diverse insights makes us a better investor.
Motley Fool UK 2023
