Will There Be An AI Stock Bubble In July 2023?

Will There Be An AI Stock Bubble In July 2023?

Currently, almost everyone might want to invest in AI stocks, but we fear they could crash because of similarities to the dot-com bubble.

Stocks related to artificial intelligence (AI) and large-cap technology have performed particularly well in 2023. Several stocks have seen a surge in interest from investors who are eagerly awaiting the next big growth story.

Echoes of the dot-com bubble are resurfacing exactly like in 2021 as the valuations of companies like Nvidia and Tesla seem to be growing more and more divorced from reality.

The bulls are now shouting, “This time it is different!” as we speak. No, we do not think so. According to an old proverb, larger objects fall harder.

Mega-caps against the others

While US indices have outpaced comparable benchmarks like the FTSE 100 in 2023, a closer look reveals that this surge is being driven by a small number of stocks.

The breakdown of year-to-date performance for some of the most well-known equities is displayed in the following graph. With a price increase of threefold, Nvidia is in the lead. All of the mega-cap names are represented by the Nasdaq Composite, which is up 33%. The S&P 500, however, is only up 16%.

Even more in-depth research reveals that the Russell 2000 index, which includes small-cap firms, has had a flat performance so far this year.

The Nasdaq 100 and smaller-cap companies are increasingly diverging. In fact, what is notable is that the ratio between the two is currently at the same level as it was in early 2000, at the height of the IT boom.

Finding AI stocks winners

Finding the AI firms that will be genuinely disruptive is comparable to searching for a needle in a haystack, much like Amazon did 25 years ago.

The need for artificial intelligence (AI) is at an all-time high. That makes sense, especially in light of the latest wave of AI developments.

However, there is a drawback to this enthusiasm for investors: Share prices of some AI leaders have significantly increased in price. But there are some exceptions. Here are the five top AI stocks that are now trading at the lowest prices, presented in alphabetical order.

1. Alibaba

1. Alibaba

Chinese corporation Alibaba operates numerous online enterprises. Among other things, it is a leader in cloud hosting and e-commerce. Right now, the stock is trading for less than 11 times projected earnings.

If Alibaba’s AI stocks receive a greater valuation from investors, we might learn about it rather soon. The business intends to divide into six different entities. Its cloud intelligence group, which will offer cloud and AI services, will be one of those divisions.

Alibaba has previously claimed that it is in a unique position to pursue the widespread commercial application of AI. But it is still unclear whether the split will advance or obstruct its AI aspirations.

2. Alphabet

2. Alphabet

Because of the innovative work done by its DeepMind, Google Brain, and Waymo divisions, Alphabet has long been a leader in artificial intelligence. With a forward earnings ratio of about 19.5, Alphabet is still one of the more attractively valued AI firms even if its shares have increased by almost 20% year to date.

Investors are concerned that Alphabet may fall behind Microsoft and its ally OpenAI in the fight for AI. According to some sources, Samsung may decide to make Microsoft’s Bing the default search engine on its smartphones instead of Google Search due to Bing’s AI integration. 

It is probably not a smart idea to undervalue Alphabet, though. The corporation has access to a vast amount of data, a wealth of AI knowledge, and a lot of cash on hand.

3. Baidu

3. Baidu

While Alphabet controls the majority of the global search engine business, Baidu reigns supreme in China. With a ChatGPT competitor and ambitions to introduce the largest fleet of self-driving robotaxis in the world this year, it is also regarded as one of the top AI pioneers in the nation.

Based on its forward price-to-earnings ratio of about 14, Baidu stock seems to be a good deal. However, the company’s chances for future growth may be the most unanswered question. The high five-year PEG ratio of over 5.8 for Baidu indicates this concern.

4. IBM

4. IBM

With its Watson technology, IBM gave an early example of the promise of AI. The long-standing tech titan is still at the center of the AI race, despite recently being eclipsed by OpenAI’s ChatGPT. As an illustration, biotech company Moderna revealed earlier this month that it is collaborating with IBM to create messenger RNA therapeutics using quantum computing and AI.

In contrast to the majority of other top AI stocks, IBM’s shares have fallen thus far in 2023. But with the company currently pricing at just a little over 13 times projected earnings, it is possible that IBM has become even more alluring to value investors as a result. The company’s generous dividend yield of around 5.3% should appeal to income investors as well.

5. Tencent Holdings

5. Tencent Holdings

Which company is the global leader in AI stocks? It is not IBM or Alphabet. Tencent Holdings of China is the rightful recipient of the distinction.

The most well-known products of Tencent are its video games, which include best-selling titles like Honor of Kings and PUBG. But the corporation also runs a number of other ventures in e-commerce, instant messaging, healthcare, and other fields.

The stock does not have as low projected earnings multiple as some of the other stocks on our list, coming in at about 20.3. That, however, is still below a lot of brisk AI stock prices. Tencent’s price is also more appealing due to its growth possibilities. It has a low PEG ratio of 1.06.

Leave a Comment

Your email address will not be published. Required fields are marked *