Is 2023 the year of the Nasdaq? The tech-heavy US share market and its Nasdaq Composite Index has rallied since January, which has Wall Street weighing in on a possible AI bubble. So is it AI optimism or what Stability AI CEO Emad Mostaque called, ‘the biggest bubble of all time’?
Last week a JP Morgan Chase chief market strategist warned of a possible emerging AI bubble, and some strategists at Bank of America have suggested there’s the whiff of an AI ‘baby bubble’ in the air.
But others argue referencing the dotcom era is not comparing apples with AAPLs. While venture capitalists have been criticised for possibly inflating AI bubble trouble with ‘FOMO bets’ on young start-ups, Fundstrat Global Advisors’ Tom Lee says the late-1990s dotcom bubble - when some tech company’s stock like Cisco’s soared as much as 100,000% - is no comparison to today’s AI investing behaviour. And nor is the dotcom era’s speculative, fad investing a comparison to today’s emerging AI innovation, which may impact everything from healthcare and retail to cybersecurity.
Lee, who expected a 2023 market rebound and anticipates a ‘shallow’ August market seasonal slowdown, said the clue that the current stock markets’ activity is probably not in AI bubble territory could be in looking at the all-time stock highs of mega-cap companies - those with a market cap of US$200+ billion. While Apple, Microsoft and Nvidia experienced their all-time highs last month, other of the world’s largest tech companies peaked in 2021:
- Alphabet (GOOG, GOOGL) has a US$1.686 trillion market cap and last week reported Q2 revenue up 7% from the year-earlier period and is showing year-to-date (YTD) growth of 48%. But their all-time high was in November 2021 with a share price of US$148.27, which today is down 10% to US$133.01
- Amazon (AMZN), with a mega-cap of US$1.357T, hit their all-time high of US$186.12 per share in July 2021 and has since dropped 28%. They announce earnings this Thursday, alongside Apple, and some analysts are buoyant about both companies
- Apple (AAPL) has sustained their June triple-trillion-dollar mega-cap of US$3.08T, seeing their highest stock closing price of US$195.83 last Wednesday 28 July and staying there
- Meta (META), at US$834.117 billion market cap, last week reported Q2 total revenue of US$32 billion, up 11%, and saw an all-time high of US$382.18 in September 2021, which has decreased 16.6% to today’s price of US$325.48
- Microsoft (MSFT) has a mega-cap of US$2.516T with YTD growth of 46%. Their all-time high was last month on 18 July at US$364.08, which has settled nearly 8% down after reporting their Q2 profits were up 20% last week
- Nvidia (NVDA), with a market cap of US$1.155T, has seen a more significant YTD climb of 226% - jumping 68.4% in the last three months - which as Lee suggests, is a drop in the ocean compared to the 10x dotcom boom. Nvidia’s all-time high was US$474.94 last month on 18 July, since dropping 1.6%.
ARK’s Nvidia dump. Despite dumping Nvidia stock in January and missing the stock’s ‘AI rally’, ARK Innovation ETF (ARKK) fund manager Cathie Wood said this July that Nvidia is ‘an incredible AI play and is priced accordingly’. But Wood’s comments are a backtrack from her May tweet: ‘$NVDA is priced ahead of the curve’, tweeted around the same time as Wharton professor Jeremy Siegel said AI is ‘not a bubble yet’. It appears that however analysts look at AI capability and AI stocks, opinions remain divided.
Other mega-cap company earnings
Outside of tech stocks, last week’s mega-cap companies announcements included:
- Exxon Mobil (XOM), with market cap US$421.117B, missed Wall Street earnings estimates and reported that profit dropped 56% from the second quarter’s (Q2) previous year, and revenue was down 27%
- Chevron (CVX), with market cap US$297B, also felt the sting of falling oil prices in Q2, and while they beat analyst estimates, the company’s earnings fell nearly 50%
- Procter & Gamble (PG), with market cap of US$368.654B, beat their Q4 estimates for earnings, up 3.79%, and revenue, up 2.66%, thanks to 7% price increases on household products
- Coca-Cola (KO), with a market cap of US$270.2B, is sipping pretty too, with Q2 net income up 33.5% from the same quarter last year, and revenue up 11%.
Bubbles are delightful in champagne, perhaps less so in share markets. 🥂 But investors who stick to their long-term investing horizon and take a leaf from Warren Buffet’s playbook are more likely to ride out market peaks and troughs.