Popular AI stocks have been struggling lately…
AI chip king Nvidia (NVDA) is down 23% from its all-time highs.
Vertiv Holdings (VRT), one of my top datacenter stocks, dropped 32% from its all-time highs.
And Super Micro Computer (SMCI), the former top AI stock of 2024, crashed 66% since peaking in March.
Did the AI bubble just pop?
You could certainly say so judging by the price action.
I disagree. I believe the AI boom is alive and well. Making this pullback an excellent buy-the dip opportunity for artificial intelligence stocks.
Let me explain you why and show you how to know when the AI market has reached the top.
AI stocks’ valuations are nowhere near Dot-com bubble levels…
Artificial intelligence revolution is often compared to the early days of internet.
And rightfully so. AI has the potential to change the world just as much as internet did in the 90s.
Likewise, investors like to compare the surge in price of AI stocks to internet stocks from the Dot-com era.
I agree, stocks of AI leaders like NVDA have gone up a lot. But valuations are nowhere near the Dot-com bubble peak:
Super Micro Computer trades at a PE of 20.5. Nvidia trades at a PE of 50. Vertiv’s PE is 58. At these valuations, today’s AI stocks wouldn’t even make the list.
And don’t forget, it paid to own Cisco in the “sweet spot” — the period in the mid ’90s when the internet was being built out and sales were soaring.
Its stock shot up 100,000% in 10 years — turning every $1,000 invested into a million dollars.
AI spending will only get bigger…
Fact is, the AI revolution is just beginning. Don’t forget that ChatGPT isn’t even two years old.
Big tech firms are locked in an AI arms race and they’re spending insane amounts of money on it.
We (RiskHedge) ran the numbers and found this is one of the largest — if not the largest — infrastructure buildouts in history.
The so-called hyperscallers — Microsoft (MSFT), Alphabet (GOOG), Amazon (AMZN), and Meta Platforms (META) — spent $52 billion in 2Q of 2024 on AI, up +54% from just a year ago. And they plan to spend even more in the future:
And those are just four companies…
Elon Musk’s AI startup xAI just built the biggest AI chip cluster ever. He connected together 100,000 Nvidia H100 AI chips, tripling the previous record.
As long as big tech competes for dominance over AI, spending will continue and AI stocks will keep profiting.
How to tell we’re at a top of an AI bubble…
This signal I’m watching for is the “IPO” curse.
I’m struck by how many times the leading company in a hot sector has gone public and marked “the top…”
The AOL-Time Warner merger in 2000 — still the largest ever — culminated in the dot-com bust.The Blackstone (BX) IPO in 2007 coincided with the top for financial markets and preceded the Great Recession.Glencore’s (GLNCY) 2011 listing marked the peak in the commodity super-cycle.Coinbase’s (COIN) IPO looks like it marked a top for crypto.
There are many fast-growing private AI companies — OpenAI, Figure AI, Anthropic, Perplexity AI… Which will eventually go public.
We’re at least a year away from a high-profile AI IPO. This tells me the AI trend has more room to run.
Conclusion: Continue investing in AI infrastructure winners…
New technologies follow the predictable I.P.A. pattern.
I-nfrastructure comes first, followed by P-latforms, then A-pps.
The iPhone launched in 2007… the App Store (platform) in ‘08… and then apps like Uber and Airbnb a few years later.
We’re in the infrastructure phase of the AI rollout.
My top AI stocks to buy are:
#3) Tesla — This is arguably one of the most misunderstood and undervalued AI stocks on the market.
Bottom line: Stop worrying about an AI bubble. You’ll miss the big gains still ahead of us.
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P.S: For more insights and analysis, subscribe to my investing letter The Jolt⚡.
I publish fresh research every M/W/F.
— Stephen McBride, Chief Analyst at RiskHedge
Did the AI bubble just pop? was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.