Stock Talk - AI Stock Bubble? What You Need to Know

Starting point is 00:00:00 Investors, everyone, and I mean everyone, with an interest in the stock market is finally talking about AI stocks. That's short for artificial intelligence. You know, computers that are learning and helping humans make better, more informed decisions in the best case scenario, Skynet and computers and robots running the world from Terminator series in the worst case. Investors, I'm revisiting the topic of stock market bubbles once again, given the stock market's recent parabolic moves and AI bubble talk. we're currently in, yes, I said currently in an AI bubble. I mean, we are in an AI bubble, aren't we, Chris? We must be, Chris, since so many financial profits and financial gurus have declared it as so. Be it, Jeremy Grantham, a GMO for the last 14 years and counting,

Starting point is 00:00:47 Cliff Asness of AQR since January 2023, or Rob Arnaut of research affiliates since at least September of 2023. I mean, they all manage real money for their clients, Chris, and they're billionaire, so they must be smart and they must be right. Yes, Chris, they must be a bubble. Or be it newsletter and bookwriters like Harry Dent since December 2008 and 2016, then multiple times again in 2021 and 2022 calling for bubbles, or be it the Black Swan shit happens hedge every month by puts and rollam academic community. I'm sure it's a bubble. Well, investors, I'm here to bring you a definitive guide on this bubble we are currently in. So this is your AI stock bubble definitive guide for investing. Investors first take a look at the truly fantastic

Starting point is 00:01:34 table from Michael Hartnett, one of the many investment strategists at Merrill Lynch outlining a brief history of bubbles in one table. It's got them all from the South Sea Company bubble in 1720. That was a terrific run back then, up 700% for those who were alive back then. More recently, there been the nifty-50 stock bubble in the late 60s and the Japan bubble in the late 1980s. But of course, today's bubble is concerned about the magnificent seven technology stocks and its even narrow tech leadership, which is AI. First, I want to come back to the Wayback Machine to August of last year. Yep, it was only then when the purveyors of Doom were out in mass

Starting point is 00:02:16 pitching the coming second half, 2003 stock market crash. Remember back then, the coming October 1987 replay that was coming? Back then, according to the loudest group promoted on TV, the technology bubble had topped. We were certainly headed towards a recession and the markets were due for a crash, a revisit of 3,600 or even worse. Our team posted a YouTube video on August 11th last year

Starting point is 00:02:42 titled Stock Market Summer Seasonality, The Stall Comes and what it means for your retirement, where we first laid out the history of the dot-com bubble from October 1998 through the first half of 2000 in all its glory, all its data. A little quote from that video when the SEP 500 was 4465, and our team was messaging a very normal third quarter downturn was coming. That was a buy into late October 2023.

Starting point is 00:03:10 Here's a quote from that video. True bubble type equity action and its popping in our opinion would come from higher levels on the stock market later in the cycle. In fact, if one is just a chartist viewing securities as pictures of supply and demand, independent evaluations, and fundamentals, one looks at many of the the monthly setups of some of the recent technology AI stocks and their moves, one might come to the conclusion that if we are in a bubble, and I mean if, call it the internet bubble 2.0, we are only

Starting point is 00:03:40 halfway here in both price and time. I continued back then. Towards the end of bubble-like moves, stocks usually move parabolicly, meaning each successive move higher is a percentage higher than the previous month, until it exhausts. Short-term selling has collapsed. Back in August of 2003, there were a few, if any, technology-related AI names making parabolic moves. Last year, the next week, on August 18th, I followed that video up with the piece titled AI bubble or summer stall. I have a link to that video in the description below. I should have been close to 100% sure we weren't in a bubble because that video was one of the least watch videos I've ever made. Investors, if no one is clicking on a video about stock market bubbles and artificial intelligence,

Starting point is 00:04:28 can it really be at the forefront of most investors' mind? I addressed presidential stock cycles and the normalcy of 2022 returns based on history. In that video, I went as far as to call out Nvidia. Yes, Nvidia and other semiconductor stocks is ground zero for AI bubble talk. Here's what I wrote. Clearly, the semiconductor group, and more specifically, Nvidia, has been the market leader since the market lows in October of 2022. In fact, the Sox Index rally lasted exactly 198 days

Starting point is 00:05:00 from Tuesday, October 13th, 2022, until the end of July, 2023, about a month ago. Now, let's look back at the Internet bubble days. I'm sure it'll look different back then. Yes? No. In fact, back then, the Semiconductor Sox Index troft on Thursday, October 8th in 1998, and finished rallying 194 days.

Starting point is 00:05:22 days later, Friday, July 16th, 1999, before topping and pulling back during the third quarter of 1999. Take a look at that chart with the first time span marked below 198 days. Reminding investors who didn't study the dot-com bubble or who didn't live through it, these were the monthly returns of the NASDAQ composite into the internet bubble peak in March of 2000. The NASDAQ had gained over 125% in the year and a half leading up to the peak of the internet bubble. including monthly returns, not annual returns, but monthly returns of 13%, 10%, 12.5%, 14%, 12.5%, %, 12.5%, 22%, and 19% per month. Take a look at the current monthly returns for the NASDAQ composite, and while they have been very, very strong over the last 18 months, they don't even approach those

Starting point is 00:06:14 percentage return levels in the time period of the dot-com bubble. Investors, the returns have been less in the dot-com bubble, most likely because our large-cap technology stocks now trade at price to growth rates of one to two times the revenue growth. First, back and during the internet bubble, five to ten times. I've been sharing overlays of the semiconductor socks index in a few individual semiconductor stocks on LinkedIn and elsewhere for upwards of nine months, warning bearish investors of their likely wrong way positioning. Where do these overlays stand now? should you be worried about all these stocks? Take a look at the Sox Index overlay.

Starting point is 00:06:52 The blue line is from October 2022 through about four days ago, and the white line is the path the index took from October 1998 through late 2000, with the price peak being in late March 2000. Hence, the same overlay with Nvidia then and now. The reason the white line is offset for Nvidia isn't because I manipulated the data, but rather because Nvidia's stock wasn't a public company in 1998 and only came public in mid-1999. Investors, for fun, I include a bonus chart of one more semiconductor company that's anticipated to be a big beneficiary of AI in the coming one or two years.

Starting point is 00:07:31 No, it's not Intel, but rather AMD, advanced micro devices. Here's an overlay of AMD then and now. Investors, I find this chart interesting because AMD has received material orders for their AI chips. and the stock is already working quite well year-to-date as it did in early 2000. However, AMD's management team has previewed exceptionally strong second-half, 2024 in 2025 orders for their chips, driving material revenue and EPS expansion that has yet to materialize. According to this overlay, if history rhymes again, this might be one of the biggest semiconductor stocks for the rest of 2024 in percentage terms and maybe even in 2025.

Starting point is 00:08:14 However, as always, no guarantees, no certainty in the stock market. Which brings me to my final point. Are we in an AI bubble? Are we in a stock market bubble? First, no one knows. I mean, how do you define a stock bubble? People throw that term around all the time now. And is a rally, a true bubble?

Starting point is 00:08:33 Secondly, the purveyors of the It's a Bubble Talk have been almost zero help for most investors. Why? Because if all the bubble profits were right, if they were so smart and sure about it being a stock market bubble, why didn't they play the game in the first place? I keep asking, why didn't they get their clients long early in the bubble process? Make them a bunch of money, then pull the plug and rip-cord when the bubble was close to its end. Instead of the purveyors of

Starting point is 00:08:58 Doom, like Jeremy Grantham's case, calling for a bubble every year for 14 years and counting and being wrong, not just early, why didn't they get their clients long? Third, while we were confident last summer that we were not in an AI bubble. Still, even if we were, you need to be buying weakness into stocks in the late fourth quarter of 2003, six to nine months ago. With most of these AI stocks up materially, one should be a little more cautious about which names they want to add to the portfolio over the next three to six months. Why? Because four, this is a huge one. Most investors forgot that while technology stocks did peak and have a very large decline in the second half of 2000 through 2001, there were many other industries and sectors in the markets that started secular

Starting point is 00:09:44 moves up as tech stocks peaked. While the technology bubble was popping in 2000 and 2001, many other industries and stocks were actually starting to work and outperform. Looking back, I see many financial companies did well. Homebuilders outperformed. Energy stocks had a good run too, and the boring staple names and utilities actually all moved up in the second half of 2000. as tech stocks sank. So for now, bubble or not, short-term top or not, the gains for stocks in 2024 are likely to extend themselves from 5,050,100 in the second half of the year, higher as the economy remains relatively stable, inflation remains below 3%. And the Federal Reserve looks to provide a little support should growth slow too much in the normal, seasonally slow summer

Starting point is 00:10:35 here. Investors, that's a wrap on AI. It's a bubble talk from the whole team here at Oak Carvis. Have a blessed weekend. All content contained with an Oak Harvest podcast expresses the views of the speaker and is for informational purposes only. It is based on information believed to be reliable when created, but any cited data, indicators, statistics, or other sources are not guaranteed. The views and opinions expressed herein may change without notice. Strategies and ideas discuss may not be right for you, and nothing in this podcast should be considered as personalized investment, tax or legal advice, or an offer or solicitation to buy or sell securities. Indexes such as the S&P 500 are not available for direct investment, and your investment results

Starting point is 00:11:22 may differ when compared to an index. Specific portfolio actions or strategies discussed will not apply to all client portfolios. Investing involves the risk of loss, and past performance is not indicative of future results.

Stock Talk - AI Stock Bubble? What You Need to Know

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