KEY POINTS
- Morgan Stanley addresses caution amid AI investment surge.
- Analysts compare current AI enthusiasm to past market bubbles.
- AI’s long-term potential remains significant, despite short-term caution.
Recent developments in artificial intelligence have been met with extensive interest and investment. OpenAI’s ChatGPT chatbot’s debut saw generative AI startups securing substantial venture capital and related stocks experiencing remarkable growth. Edward Stanley, who oversees thematic research in Europe for Morgan Stanley, and his associate Matias Ovrum have voiced concerns about the rapid investment, urging patience among investors. Their research, which drew parallels between the current interest in AI and 70 previous market bubbles, suggests caution might be the best approach for now.
While the long-term prospects of AI remain promising, the recent surge in AI-associated equities, especially Nvidia with its near 200% growth year to date, has raised eyebrows. Historical market bubbles, including the dotcom era and the post-COVID rise, serve as reminders of the potential risks of investing in trending themes too hastily.
A short-term view on AI-related stocks might suggest caution. For instance, despite the warranted excitement around Search in the late 1990s, waiting until the early 2000s would have offered a clearer picture of the dominant players and provided significant equity gains with less risk. The present growth in Nvidia and other large U.S. tech stocks, attributed to AI, surpasses the average market surge, warranting a conservative approach.
The concept of a Keynesian beauty contest, as introduced by John Maynard Keynes in his 1936 publication, serves as an analogy to describe the current market behavior. According to Keynes, individuals in markets, like participants in the said contest, often base their decisions on the anticipated actions of the majority rather than their own analysis. This mindset can lead to bubble formations in markets. Such behavior might be influencing the current spike in AI stocks.
However, despite the rapid growth in AI stocks and a decrease in significant AI product releases, the longer-term outlook on AI remains optimistic. Recent data indicates consistent engagement with open-source AI models. For instance, the top 100 models at Hugging Face, a prominent open-source AI model repository, saw 3.5 billion downloads since January 2021.
Upon comparing past bubbles with AI indexes in 2023, it’s evident that while AI-associated winners have surged by over 200%, broader AI indexes have grown by a more restrained 50%. This suggests that the adoption and consistent engagement with AI differentiate it from past market frenzies.
For the long-term, AI continues to present itself as a noteworthy investment opportunity. However, the key for investors lies in their approach and timing of their investment decisions.
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