AI bubble worriers should be more concerned about supply risk as companies build out AI infrastructure than with valuations being above historical norms.
After all, if tech companies can’t get the equipment they need — such as AI and memory chips — there is no way they can meet robust profit predictions. Then the bubble will probably get popped.
“I think the concern that probably should be top of mind is less about some major faltering and demand, but supply chain risks and access to what is needed to continue this build-out,” Charles Schwab chief investment strategist Liz Ann Sonders said on Sozzi Unleashed. “I think that is something that is less discussed, not to mention the fact that AI, even if long term it’s disinflationary, it is inflationary in the here and now.”
The debate over an AI bubble remains top of mind for investors.
The S&P 500 (^GSPC) has never been more concentrated in just three stocks than it is today, with Nvidia (NVDA), Apple (AAPL), and Microsoft (MSFT) representing over 21% of the index, per data from Creative Planning.
The importance of these three stocks to the S&P 500 has never been greater.
Only IBM (IBM), AT&T (T), and ExxonMobil (XOM) could hold a candle to the three tech stalwarts of today: In the mid-1980s, those three industrial giants at their peak made up 13.4% of the S&P 500.
The most crowded trade in October is being long global semiconductor stocks, according to BofA’s latest fund manager survey. An AI bubble bursting was the second-highest risk on fund managers’ minds, behind only rising Treasury yields.
“I think that’s another factor to consider as it relates to what could maybe slow things down from an AI perspective,” Sonders added. “It’s just the cost of this build-out has moved up so, so significantly.”
Brian Sozzi is Yahoo Finance’s Executive Editor, host of the Sozzi Unleashed morning show and the Power Players with Brian Sozzi podcast, and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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