A rush of interest in artificial intelligence (AI) has helped to fuel a $4tn (£3.2tn) rally in technology stocks this year, with the US Nasdaq exchange reaching its highest level since last August in a week that saw the chipmaker Nvidia poised to become the next trillion-dollar company.
Some stocks seen as AI winners – such as semiconductor makers and software developers – have more than doubled in value as traders bet on massive growth in the industry, even as fears mount over waves of job losses as everyday tasks become automated.
On Friday, the combined value of technology companies listed on the Nasdaq Composite share index reached $22tn , according to the international data firm Refinitiv, up from $18tn at the end of 2022. The AI rally has helped lift the index 23% so far this year.
Nvidia, whose high-end chips are used to power the datacentres used by the new wave of generative AI products such as ChatGPT, could soon become the first chipmaker to be valued at more than $1tn. Its share price has risen by 160% during 2023, lifting its value from $361bn at the start of the year to over $940bn when Nasdaq reopened on Friday morning.
On Thursday Nvidia’s shares jumped by 24% during a wild session after it predicted soaring demand for its chips. Nvidia’s rally added almost $300bn to the value of stocks related to AI, Reuters calculated.
Shares in Google’s parent company, Alphabet, have rallied by almost 40% so far this year, but did tumble 9% in February after its Bard chatbot gave an erroneous answer during a promotional video demonstration.
The surge in shares in AI-linked companies has created fears of a new bubble.
“We are naturally brought to ask whether this year’s tech rally hasn’t stretched too far,” said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.
Ozkardeskaya added that Nvidia’s share price jump had lifted its share price-to-earnings ratio to a multiple of 200, a sign that investors were expecting booming profits in future years. The overall S&P 500 stock index has a price-earnings ratio of about 22.
“Consequently, we are probably seeing a bubble in the making in the AI-related stocks. Although no one questions the potential of AI, the valuations seem to have gone ahead of themselves and it could soon be time for correction,” Ozkardeskaya said.
But Mark Haefele, the chief investment officer at UBS Global Wealth Management, does not believe the AI-related rally is unsustainable, although some valuations do look stretched.
“From a broader perspective, AI, along with big data and cybersecurity, form what we call the ABCs of technology, which we believe are foundational technologies set to accelerate over the next few years,” Haefele said.
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