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The impact of AI on the markets: Could there be a bubble?


The impact of AI on the markets: Could there be a bubble? By

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Laura SánchezEconomy

Published Aug 01, 2023 11:41

© Reuters. – Stock markets are still watching macroeconomic data as Artificial Intelligence (AI) continues to make its way into global markets.

Rolando Grandi, CFA, international equity fund manager at La Financière de l’Echiquier (LFDE), discusses the impact of the technology sector and the advance of AI on markets. “On the Nasdaq composition adjustment to reduce the weight of technology stocks, we believe that extreme concentration will be reduced thanks to the rebalancing rule. This will increase the weight of non-FAAMG stocks, which should be positive to help broaden the current bull market,” says Grandi.

“We are in a developing bull market for technology stocks. The upcoming end of the current Fed hiking cycle, coupled with lower valuations and the advent of AI is a powerful combination that has been driving the rally since the beginning of the year. We expect estimates to start rising as spending on technology accelerates thanks to the current race to develop AI applications,” he adds.

While it is not unthinkable that the rise of AI will cause a bubble in the technology sector – we know that investor psychology can shift from extreme pessimism to extreme enthusiasm – we believe that the latest developments in AI are a continuation of a well-established trend that began a decade ago,” Grandi says.

“Current AI adoption is at an early stage, but the use cases are real and the economic results tangible. This should drive accelerating earnings per share growth for companies developing or adopting AI, which should translate into healthy fundamentals that will support rising share prices,” says the La Financière de l’Echiquier manager.

“Technology companies face a challenging environment after two years (2020-2021) of high technology spending. Companies are optimising their spending, which has led to a slowdown in the sector. The good news is that we are almost out of the woods with the resumption of spending thanks to the advent of AI. As revenues accelerate, we feel very confident in the fundamentals of the sector. Microsoft (NASDAQ:MSFT) already expects a +2% increase in its Azure growth rates thanks to AI, while Tesla’s Model Y became the world’s best-selling vehicle. We continue to evolve into a technology-driven world and expect the trend to continue,” he concludes.

(Translated from Spanish using DeepL)

The impact of AI on the markets: Could there be a bubble?

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