Stock markets continue on their upward trend despite warnings of an AI bubble. Photograph: Christian Ohde/Alamy View image in fullscreen Stock markets continue on their upward trend despite warnings of an AI bubble. Photograph: Christian Ohde/Alamy Economics viewpoint Economics The AI bubble has further to run despite the looming crash Phillip Inman As tech firms make huge profits and investors fear losing out, both are doing their best to hold off the day of reckoning
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E very couple of decades, investors will ask themselves how long can the stock market keep climbing. Is it safe to buy more shares? Is their pension or equity portfolio vulnerable should financial markets, and especially those in the US, come crashing down to earth?
When stock markets rise to historically high levels – and beyond the level when normal profits can sustain share prices – a few “experts” typically warn of an impending crash.
Many of these experts – City analysts and financial economists – go early with their predictions , only for the market to spend many more years rising. During that time, these experts become discredited and all warnings are ignored.
Today, we are witnessing the same. And again those who warned last year and the year before – about the artificial intelligence boom being, yes, artificial, and corporate borrowing by tech companies being too high – can be found muttering about how their moment of vindication will come.
Investors are now in that dangerous situation of being hardened to anything that gets in the way of pumping more cash into stock markets.
View image in fullscreen Fears of a tech-driven crash continue to haunt the S&P 500. Photograph: John Angelillo/UPI/Shutterstock The emphasis in this debate is on the New York stock market indexes – the S&P 500 and the tech-heavy Nasdaq . But it matters for everybody because all the biggest financial shocks of the past 100 years have been visited on the rest of the world by US banks, US investors or US financial markets.
In focus at the moment is the concentration of equity in just seven companies, the Magnificent Seven: Amazon, Alphabet (Google), Nvidia, Meta (Facebook), Microsoft, Apple and Tesla (possibly soon to merge with Elon Musk’s other venture, Space X ).
There were signs that investor appetite was waning at the start of the year as many of the seven began borrowing to fund investment in AI.
This loss of appetite for stocks became more severe when Donald Trump started firing rockets in Iran’s direction at the end of February.
The panic was short-lived. The fear of missing out kept most investors in the game Yet the panic was short-lived. The fear of missing out kept most investors in the game. As a measure of how hardened investors had become to expert advice and the potentially ruinous impact of wars, (or threats from higher borrowing, higher interest rates or whatever), it only took for Trump to say at the end of March that he was in talks with Iran for the S&P 500 to soar again.
And last week was no different. More warnings and more stock market gains.