Analysts at Wall Street investment bank Goldman Sachs (GS) say that while valuations are high, artificial intelligence (A.I.) stocks are not yet in a bubble.
Furthermore, Goldman Sachs says that the current A.I. investment boom may have plenty of room to keep going, but echoes of the dot-com bubble that burst in 2000 are now “identifiable.”
Current similarities with the dot-com bubble include rising leverage, widening credit spreads, and market volatility, noted the investment bank.
As such, strategists at Goldman recommend investors not leave portfolios “excessively vulnerable” to risks of a stock market crash.
This could require that investors diversify, keep positions small, and possibly position their portfolios for even wider credit spreads.
Goldman Sachs stresses that the “defining feature” of a stock market bubble is when asset prices are detached from any notion of fundamentals or value.
They argue that while valuations are elevated currently, they are not yet in the danger zone. “Robust earnings have underpinned equity performance,” they conclude.
They also stress that profitability among mega-cap technology companies such as Alphabet (GOOGL) and Meta Platforms (META) isn’t deteriorating.
The bank concludes that there’s still “substantial room” ahead for the current A.I. story to play out.
GS stock has risen 37% this year to trade at $786.34 U.S. per share.
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