Benzinga - by Piero Cingari, Benzinga Staff Writer.
Analysts and economists continue to question whether we are on the verge of witnessing an AI bubble burst similar to the dot-com collapse of the early 2000s, and what the economic repercussions of such an event might be.
In recent days, investor concerns have grown due to a semiconductor sell-off led by Nvidia Corp. (NASDAQ:NVDA), which fell by over 13% since last week’s record highs.
Jeffrey Roach, PhD, chief economist at LPL Financial, distanced himself from bubble fears and instead emphasized the productivity-gain narrative from new disruptive technologies like artificial intelligence.
“While some are drawing parallels between the current period and the late-1990s tech bubble and concluding that a crash may be coming, that's not our view at all,” Roach stated in a Monday note.
The market environment is fundamentally different because the leading companies are of the highest quality and most profitable in the world, with much lower valuations, the economist said.
Comparing the March 2000 dot-com bubble peak valuations to the present, Roach highlighted that today’s market is not as overvalued.
“In March 2000, the market was trading at a price-to-earnings ratio of 31 based on trailing earnings at that peak, compared to 25 times currently – a big difference.”
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Why Is The AI Boom Positive For Markets? Artificial intelligence could drive broader productivity gains for the economy, encouraging capital investment and fostering competition among companies, Roach said.
The expert referenced past studies showing that potentially groundbreaking technology can have a sustained impact for generations. According to Stanford University research, the impact on the job market from new technologies could take around 50 years to fully materialize.
“Developments in artificial intelligence may be the antidote for an aging population, but it takes time for these advancements to work themselves into the fabric of our nation's businesses,” Roach wrote.
Roach predicts that a likely path for markets is a pullback or mild correction in the second half, offering investors the opportunity to buy on dips. He advises against chasing the current narrow, AI-fueled rally and maintains a neutral recommendation for technology allocation.
He expressed a positive outlook for the long run. “For those long-term investors willing to look past near-term uncertainty and elevated— but not bubble-like — valuations, the role of disruptive technologies might turn out to be the antidote to the headwinds of today.”
With this statement, Roach not only referred to the aging population, but also to the elevated interest rate regime and persistent inflation challenges facing the U.S. economy.
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