Individually, none of these bearish prophecies have slowed a market rally that has added $5 trillion to the Nasdaq 100’s value since December. But when they start exerting fresh pressure all at once, even the boldest proponents of artificial intelligence can be forgiven for feeling sheepish.
“There is a lot of faith that the prospects for AI are real and will not end up the same way that the internet bubble stocks did,” said Peter van Dooijeweert at Man Solutions. “Even modest news flow has led to larger moves to the downside in several specific technology stocks suggesting vulnerability may be more than perceived.”
“Their collective net income fell to $263 billion in the past four quarters, down 9% from $289 billion the year before,” he said. “If stock prices are the net present value of their future cash flows, higher rates should penalize growth stocks, which derive most of their profits from distant profits.”
“Tech valuations are clearly stretched. Tech and AI do have the potential to make important, transformational changes to the global economy, but time horizon expectations for these productivity boosts are far too short,” said Seema Shah, chief global strategist at Principal Asset Management. “They deserve a place in portfolios, it’s just that today may not be the best time to be adding exposure.”
“If the market’s assessment of the economic outlook worsens, and financial conditions tighten as a result, tactically Growth is likely to under-perform, if the current relationship remains in place,” the team led by Sarah McCarthy wrote in a note.