Investors are flocking to stocks with exposure to artificial intelligence, and they can pay a hefty price.
Economist David Rosenberg, known for his contrarian views, believes the AI frenzy is a major distraction from recession risks.
“There is no question that a price bubble exists,” the president of Rosenberg Research told CNBC’s Fast Money on Thursday.
According to Rosenberg, the AI explosion bears striking parallels to the dot-com boom of the late 1990s, especially when it comes to the Nasdaq 100 surge over the past six months.
“[This] It looks very strange,” said Rosenberg, who was Merrill Lynch’s chief North American economist from 2002 to 2009.
Nvidia’s explosive quarter this week helped take AI excitement to new levels. The company raised its full-year forecast after Wednesday’s market close after strong quarterly earnings. Nvidia CEO Jensen Huang cited a surge in demand for its AI chips.
NVIDIA’s stock price jumped more than 24% on the news and is currently up 133% in the past six months. Shares of AI competitors Alphabet, Microsoft and Palantir have also surged.
In a recent memo to clients, Rosenberg warned that Larry was on borrowed time.
“The S&P 500 index spread is at its worst since 1999, with just seven mega-cap stocks making up 90% of this year’s stock performance,” Rosenberg wrote. “If you look at the tech weighting of the S&P 500, it hits 27%, which was the level heading into 2000 when the dot-com bubble peaked and soon reversed spectacularly.”
While mega-cap tech stocks have outperformed, Rosenberg sees trading activity in banks, retail stocks and transportation stocks as ominous.
“The torque on GDP is the biggest. It’s down more than 30% from its cycle high,” Rosenberg said. “They’re actually behaving in exactly the same pattern as they did during the last four recessions.”
Disclaimer
