The rise of artificial intelligence has contributed significantly to the rally that markets have experienced throughout 2023 and in the first two months of 2024. But is the rise of ai the beginning of a new technology bubble? TD wealth global investment Strategist Kevin Hebner outlines three reasons why Wall Street could be headed toward such a scenario:
1. Concentration of returns. Hebner said that since 1920, there have only been two other times in history when returns have been so concentrated in such a small group of names.
2. Valuations are at their limit. According to Hebner, these valuations are not as exaggerated as in the 1990s, but they are definitely beyond normal levels.
3. A euphoric tone. Hebner highlighted the numerous experts and market experts who have offered aggressively positive predictions when discussing the idea of artificial intelligence.
Despite these signs of caution, Hebner also pointed out possible ways in which the rise of ai differs from the tech bubble of the 1990s. “What's different this time is that, in the 1990s, companies were burning a lot of cash. And ultimately what burst the bubbles of the 1990s were the headlines and Barron's and things that said, 'Oh my God, we're running out of cash,'” he said.
“Right now, we have huge free cash flow generation, great margins, great return on invested capital, at least from Mag Seven and related names,” Hebner added.
For investors who want to further analyze and understand the ai landscape, here is a group of ai-based ETFs to watch:
- GX technology and artificial intelligence ETF (NASDAQ:AIQ)
- GX Robotics and artificial intelligence ETF (NASDAQ:BOTZ)
- ALPS Disruptive Technologies ETF (DTEC)
- Goldman Sachs Innovate Equity ETF (GINN)
- iShares Multi-Sector Robotics and artificial intelligence ETF (NYSERCA:IRBO)
- artificial intelligence and Robotics ETF (NASDAQ:ROBT)
- iShares US tech Breakthrough Multi-Sector ETF (TECB)
- iShares Exponential Technologies ETF (XT)
- Robo Global ai ETF (THNQ)
- Roundhill Generative ai and technology ETF (CHAT)
