Is Artificial Intelligence in a Bubble?
Artificial intelligence (AI) is making major waves in the stock market.
AI companies are crushing the rest of the market.
Over the past year, The WisdomTree Artificial Intelligence and Innovation Fund (ticker: WTAI) is way ahead of the S&P 500 and is almost double the performance of the technology-focused Nasdaq.
The appetite for AI is enormous.
Nvidia (ticker: NVDA), the chipmaker used in AI, just became the first company to cross $5 trillion in market cap just last week.
And it’s going to get crazier.
The IPO could value OpenAI at $1 trillion.
For some perspective, OpenAI would be worth more than Walmart (ticker: WMT) and JPMorgan Chase (ticker: JPM).
Walmart has made over $20 billion in income over the past 12 months.
JPMorgan made over $55 billion over the same time frame.
But here’s the really crazy part.
OpenAI isn’t supposed to make any profit until 2029!
Everyone needs to take a deep breath.
AI is the future.
It’s going to completely change the way we live our lives.
But a company losing money until 2029 being worth $1 trillion is ridiculous.
I’m getting major flashbacks to the stock market in 2000.
Back then, everyone was talking about how the internet was the future.
25 years later everyone was proven right.
And internet stocks were soaring.
Amazon (ticker: AMZN) wasn’t always the tech behemoth it is now.
It started as a simple online retailer for books.
In 1998, Amazon’s stock price zoomed up over 1,000%.
But the company wasn’t making any money!
When the bubble popped in 2000, Amazon’s stock fell over 90%.
A 90% drop is really scary.
Should we dump all of our AI stocks?
Not so fast.
The current price-to-earnings ratio for the Nasdaq index is 35x, which is a lot lower than its price-to-earnings ratio of 70x back in 2000.
But the Nasdaq’s price-to-earnings ratio hasn't been as high as 35x in over 20 years.
What should you do?
Now is a great time to lock in some gains on your AI stocks and sell a few shares.
If AI stocks continue to climb, you’ll be happy you still have some money invested in it.
But if AI stocks crash, you’ll be glad you didn’t have more.
Where should we move some of our AI money?
First up is Berkshire Hathaway (ticker: BRK-A, BRK-B), Warren Buffett’s company.
Almost half of Berkshire Hathaway’s revenue is from insurance and manufacturing.
And while Berkshire Hathaway owns over 200 million shares of Apple (ticker: AAPL) stock, Apple isn’t investing in AI as much as other tech companies.
If AI starts to falter, Berkshire Hathaway’s stable portfolio of companies will keep your portfolio green.
Also consider Kroger (ticker: KR), the largest supermarket retailer in the U.S.
Kroger uses AI to help improve its stores and its shoppers’ experience.
But at the end of the day, Kroger is in the business of selling food to people, which it’s done for almost 150 years without the use of AI.
The last pick will shock you, but I think Alphabet (ticker: GOOG, GOOGL), owner of Google, is a great hedge against an AI crash.
Alphabet is developing Google Gemini, an AI chatbot competing with ChatGPT.
And Google just announced it’s building a $15 billion AI data center in India.
So why is Google a great stock to reduce your exposure to AI?
Google Search is a massive moneymaker for Google.
And AI chatbots might make Google search obsolete.
So if AI development falters, Google is in a great position to keep making money.
Do you think we are currently in an AI bubble?
It seems everyone has an opinion…I want to hear yours!
