The AI boom is far more robust than the dot-com bubble, but there’s still a risk it disappoints investors and sends shockwaves through markets and the economy, Liz Ann Sonders says.
Charles Schwab’s chief investment strategist told Business Insider that “extreme enthusiasm” about innovation and circular deals between tech companies reminded her of the internet bubble 25 years ago.
But she said a key difference is that many dot-com companies were small and loss-making, whereas today’s AI leaders are massive companies with strong balance sheets and fast-growing revenues and profits, she said.
For example, Nvidia became the first company to notch a $5 trillion market capitalization this week, but that valuation has some support in the form of the microchip giant’s $47 billion revenue and $26 billion net income for the quarter ended July 27.
Sonders said the immense concentration of investor wealth in Big Tech companies means there’s “more exposure to the equity market than ever before.” She said that if a bear market takes hold, it “could have feeders into the economy” as consumers might balk at their portfolio losses and cut back on spending, curbing economic growth.
The Wall Street veteran said there’s a danger that AI companies fail to deliver on their bullish growth forecasts, which have driven the stock market to record highs.
“That’s the ultimate risk — that you’ve set the expectations bar too high,” she said. In that situation, even a slight miss could trigger market behavior that’s a “little more egregious,” she added.
Sonders said that speculation in more niche areas, such as meme stocks, drones, and quantum computing, made her a “little less uncomfortable” about investor exuberance, as “you could have cracks in that armor show up” without tanking the wider stock market.
She added that gold’s surge to record highs of over $4,000 this month was an “area where the enthusiasm pendulum swung maybe a bit too far,” and the moves were “more about FOMO than fundamentally driven.”
Sonders said it’s tricky to gauge the health of the US economy right now as the government shutdown has disrupted some data releases: “We’re all flying this plane a little blind right now.”
But she said that economic gauges in recent months have shown rising pressure on lower-income consumers and a softening labor market, which could erode growth.
“It’s not screaming ‘recession is imminent,'” Sonders said, but investors should “be mindful” of a weakening jobs backdrop.
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