This investor predicted the dot-com bust. He thinks AI is a bubble that will ‘deflate’

This investor predicted the dot-com bust. He thinks AI is a bubble that will ‘deflate’ - Business and Finance - News

artificial intelligence on Wall Street: Bubble or Revolutionary Technology? A Perspective from Jeremy Grantham

New York – The debate surrounding the role of artificial intelligence (ai) in the financial industry has been a hot topic among investors since the beginning of the new bull market last year. Jeremy Grantham, the renowned investor known for predicting the dot-com bubble burst in 2000 and the financial crisis in 2008, shares his perspective on this issue. He believes that ai is a potential bubble, which could experience deflation.

The technological advancements in the field of ai have led to remarkable growth in tech stocks. The rally in 2023 saw shares of leading tech giants, particularly US chipmaker Nvidia, experience significant gains. Consequently, all three major indexes reached new all-time highs. The S&P 500 Index even logged its 17th record high close of 2024 on Tuesday.

Despite the optimistic outlook, Grantham remains skeptical about the long-term potential of the US stock market. He emphasizes that history suggests a significant market pullback may be imminent, given the market’s exuberant state.

The market experienced a sharp sell-off in 2022 when the Federal Reserve began raising interest rates to control inflation. However, Grantham believes that this correction was just a pause as the market continued its rally in late 2022 and early 2023. He anticipates that the sell-off will eventually resume, and an economic downturn seems likely in the future.

Despite his bearish outlook on the market as a whole, Grantham identifies some investment opportunities. He recommends investors focus on quality stocks, defined as companies with strong balance sheets and high returns on equity. Additionally, he favors shares in the energy and metals sectors due to their finite nature.

In recent news, the war in Gaza has disrupted business deals between companies in the region. BP and Abu Dhabi’s state-owned oil company have suspended talks to buy a 50% stake in Israel’s leading natural gas producer. The uncertainty created by the conflict has put a hold on discussions, with no certainty regarding their future or terms should an agreement be reached.

Beyond market concerns, geopolitical tensions continue to impact global businesses. The potential TikTok ban in the US has been described as an “act of bullying” by China’s foreign ministry. This comment came hours before a House of Representatives vote on legislation that could force ByteDance, TikTok’s Chinese owner, to sell the popular social media app or be barred from operating in the US.

Regardless of the outcome, Grantham’s analysis indicates that investors should remain cautious and seek out opportunities that align with their long-term financial goals. Stay informed about the latest market trends, geopolitical developments, and economic indicators to make well-informed investment decisions.