Investors who invest in stocks exposed to artificial intelligence may pay a high price.
Economist David Rosenberg, a bear known for his contrarian views, believes the enthusiasm surrounding AI has become a major distraction from recession risks.
“There’s no doubt that we have a price bubble,” the president of Rosenberg Research told CNBC’s “Fast Money” on Thursday.
According to Rosenberg, the AI push bears striking similarities to the dot-com boom of the late 1990s, particularly with regard to the Nasdaq 100 breakout in the last six months.
“[This] it looks very weird,” said Rosenberg, who was Merrill Lynch’s chief North American economist from 2002 to 2009. “It’s way too broad.”
This week, Nvidia’s blowout quarter helped elevate AI excitement to new levels. The chipmaker raised its full-year guidance after posting a strong quarterly profit pace after Wednesday’s market close. Nvidia CEO Jensen Huang cited growing demand for its AI chips.
Nvidia the stock gained more than 24% after the report and is now up 133% over the past six months. AI competitors Alphabet, Microsoft And Palantize are also experiencing a surge in inventory.
In a recent note to clients, Rosenberg warned that the rally was on hold.
“There are extensive measures for the S&P500 these are the worst since 1999. Just seven mega-caps accounted for 90% of this year’s price performance,” Rosenberg wrote. “You look at the technology weighting in the S&P 500 and it hits 27%, where it was heading. in 2000 as the dotcom bubble reached its peak and was soon to reverse dramatically.”
As mega-cap tech outperforms, Rosenberg sees worrying trading activity in banksvsconsumer discretionary shares and transportation.
“They have the highest torque to GDP. They are down more than 30% from cycle highs,” Rosenberg said. “They are behaving exactly the same way they have in the last four recessions.”