Morgan Stanley compares the AI market excitement to past market bubbles and advises investors not to get swept away by the hype.
AI is the new trend. Millions of dollars are pouring into the industry, as new AI startups attract considerable venture capital. Even the US Securities and Exchange Commission turned its focus away from crypto to AI, saying that it's the most transformative technology of this generation.
The hype naturally attracts individual investors into the space as well. However, Morgan Stanley predicts that the AI market could turn into a bubble and advises investors to tread lightly.
AI Market Bubble
Speaking to Fortune Magazine, the Head of Thematic Research in Morgan Stanley Europe, Edward Stanley says that the current situation of AI resembles past market bubbles a little too much.
Stanley mentioned the famous dotcom bubble that arose when the internet was first launched, and the post-covid “everything bubble”, and said that the AI space is appearing like a “bubble-like euphoria.”
He stated:
“Hype around Search in the late 1990s, for example, was ultimately warranted. However, investors could have waited until 2003 to have a better understanding of who the likely winners would be and still capture >90% of the equity upside, and with greater downside protection [...] History has shown that for multiyear themes—which we believe this is—there is usually little need for investors to rush in.”
A similar idea was mentioned by Stability’s CEO Emad Mostaque as well. As covered by Foretoken Media, Mostaque warned the investors of a potential AI bubble.
Great Potential of AI
Nevertheless, neither Stanley nor Mostaque argues that the market is only about a bubble. Both acknowledge that AI has great potential in the future. They only warn about certain dangers in short-term investments.
Stanley clearly expressed that he believed AI to grow to show its full potential in the future. He stated:
“Bubbles tend to rally a median of 154% in the three years pre-peak; 217% on average. The first derivative A.I. winners have rallied over 200% YTD [year to date], yet broader A.I. indices are up a more modest 50% YTD and not yet above prior 2021 highs,”
According to Mostaque, on the other hand, AI will grow to be a $1 trillion market.