Neither tulip, nor dotcom, nor brick, market consensus rejects AI bubble (by a narrow margin)

Astera Labs is a company that takes care of the hardware needed to connect data centers to the cloud. At a time when Artificial Intelligence (AI) is emerging, establishing itself and showing its potential, data centers, connections and everything related to the cloud are like music to music for investors looking for a strong position in a high-growth market. Looking for companies with growth and opportunities. Evaluation

The company, which has seen its revenue grow 45% in just one year ($115.8 million in 2023), debuted on the Nasdaq on March 20 and closed its first day with a 72% increase over its opening price ($62.03). done. IPO $36.

The same music is increasingly being heard in conversations with analysts. According to FactSet data, 179 S&P 500 companies have talked about AI in their conversations with strategists following the last presentation of quarterly results. And according to this consulting firm “it is interesting” that the companies that cite “They have had better average share price growth over the last 12 months than companies not featured in the index.”

At the time of writing this note, the Dow Jones is touching 40,000 for the first time and the S&P 500 continues to rise from record to record, which analysts generally consider still narrow because it is led by very large companies. Mainly in technology and communication.

And does that music remind you of the music heard in the late nineties and 2000? By 2007? Are the AI ​​chords the same as those heard during the bubble dot com or home?

Bank of America asked this question in its latest Global Fund Manager Survey, published March 19, and the result is ‘no’, although not by much.

45% of fund managers say there is no AI bubble and 40% say there is. 15% are not clear about the answer in one direction or the other.

The bank’s strategist Savita Subramaniam said in a note to investors a few days ago that there are “no signs of a bubble” in the S&P 500.

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What signals do they look for?

According to this strategist, the pre-conditions for a market bubble include “The gap between asset price and intrinsic value, democratization of the asset class and rampant speculation, often increased by leverage (debt).”

Housing in 2007, technology in 2000, and tulips in 1637 are examples that meet these criteria, Subramanian explains, something that is not currently met. This strategist explains that the S&P 500, once the Magnificent Seven (Alphabet, Microsoft, Nvidia, Apple, Meta, Tesla and Amazon) are eliminated, “works closer to long-term multiples.”

For this analyst’s team, which recently updated and raised their target for the S&P 500 in 2024, “The current rate is incomparable to previous decades”,

Those who also think there is no bubble include Scott Wren, global strategist at Wells Fargo Investment Institute, who compares this moment to March 2000 – when the tech bubble – dot com Reached its extreme—doesn’t produce the same results.

According to Wren’s calculations, if the March valuation from 24 years ago is applied to current year’s earnings estimates for comparison, “it would put the S&P 500 at 6,210, or a little over 20% above current levels.”

This strategist admits that the rally that took this benchmark index to its maximum at that time was “a relatively small number of technology-oriented stocks”, although he argues that the difference is that now there is quality in those companies that lead the progress. Are.

Some see danger of bubble

One notable investor with a bearish outlook (bears) Jeremy Grantham, co-founder and long-term strategist at GMO, is in the zone where he sees a bubble, although this is not the first time he has done so.

Grantham believes that many of these revolutions are as transformative as early investors could have envisioned and sometimes “even more so, but only after a considerable period of disappointment during which the initial bubble bursts.” His example is Amazon which led the speculative market in the nineties with “a 21-fold increase from its beginning in 1998 to its peak in 1999, before inheriting half of the retail world, declining by about 92% between 2000 and 2002.” I!”

This investor believes there is a bubble within a bubble (which arose from the stimuli done to deal with Covid in 2021) which did not allow the former to explode. He acknowledges that this is unprecedented, even if it is limited to “a handful of stocks,” but he believes that this second investment bubble in AI, “will at least temporarily deflate and possibly last as long as the original bubble.” Will feature a more general ending, which we paused in December 2022 to admire the AI ​​functions.

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