Are we in an Artificial Intelligence bubble? Basant Maheshwari says ’bubble phase’ a good opportunity to make money
Investor Basant Maheshwari has hinted at a possible bubble in the artificial intelligence (AI) sector in the US. In his BM Equity Report, Maheshwari advised investors to participate in potential bubbles rather than fear them.
Hinting at a possible bubble in the artificial intelligence sector (AI) in the US, eminent investor Basant Maheshwari said a 'bubble phase' in any sector gives an opportunity to investors to make a good profit in a short span of time so rather than fearing a bubble, one should consider participating in the bubbles.
In his BM Equity Report on June 12, Maheshwari, who runs a Sebi-registered portfolio management company Basant Maheshwari Wealth Advisers LLP, said no one can be sure about a bubble. Still, if it is an AI bubble, stocks like Nvidia may double in the last six months of the bubble phase.
"Don't ignore a bubble. I don't know whether there is a bubble in AI or not. The market will tell you that. But for the moment, I assume there will be a bubble in the AI sector," said Maheshwari.
Maheshwari said that one may lose money if he/she enters the last of the bubble phase. But one of the important features of the bubble phase is that stocks get doubled in the last six months. It is clearly evident when the bubble blasts.
The sharp gains in Nvidia’s share price have dazzled the market and analysts expect the stock to rise further.
As per a Wall Street Journal report, Nvidia shares nearly tripled in 2023, making them the best performers in the S&P 500. The graphics chip maker has gained more than $650 billion in market value since hitting a two-year low in October and briefly crossed the $1 trillion mark earlier this week.
"Nvidia’s rise contrasts with much of the broader market. Six of the 11 sectors of the S&P 500 are down this year. Yet the benchmark is up 11.5 per cent, largely powered by the gains in a handful of big technology stocks. That raises the question of whether the rally will fizzle out or kick off a new bull market. The AI craze has been building since Microsoft announced a $10 billion investment in ChatGPT developer OpenAI in January," the Wall Street Journal report said.
Meanwhile, talking about the interest rate trajectory in the US, Maheshwari said he expects the Fed to take a pause in June, followed by a 25 bps increase in rates in July. There may be a cut in November and by the end of the next year, the Fed rate would be in the range of 3-3.5 per cent. Inflation will have hit the 3 per cent mark in June, said Maheshwari.
Maheshwari highlighted that if the market becomes convinced that there will be no interest rate hikes beyond July, it will not wait until November to gain momentum, but rather commence its upward trajectory promptly.
Maheshwari highlighted that some of the technology stocks, such as Tesla, are highly volatile and if the Fed raises rates in June, these stocks may easily erode 15-20 per cent of their market value.
He said one should not think about US stocks only as the Indian mid and smallcap space too has a lot of opportunities at the moment. He said investors who can't digest high volatility should avoid some of the US technology stocks.
Disclaimer: The views and recommendations given in this article are those of the analyst. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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