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CIO CORNER

Is the AI-led rally in US stocks a bubble?

Generative AI holds great promise, but the path ahead is likely bumpy with periodic setbacks

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    • Nvidia is the poster child of the AI rally, trading at 37 times price-to-sales multiple. Its price-to-earnings ratio based on 2024 earnings expectations is 55 times, way below the 300 times PE ratio on the Nasdaq 100 in 2000.
    • Nvidia is the poster child of the AI rally, trading at 37 times price-to-sales multiple. Its price-to-earnings ratio based on 2024 earnings expectations is 55 times, way below the 300 times PE ratio on the Nasdaq 100 in 2000. PHOTO: REUTERS
    Neo Teng Hwee

    Neo Teng Hwee

    Published Tue, Jun 27, 2023 · 06:25 PM

    ONE puzzling phenomenon for investors this year is the dichotomy between the equity market and the outlook for the US economy. Many economists have cautioned about the high risk of recession in the US, exacerbated by credit tightening in the regional banking sector.

    The large inversion of the yield curve also warned ominously of recessions comparable to the 2000 dotcom bubble and the 2008 global financial crisis.

    In our view, the strong performance in the equity market rests upon two important factors: disinflation and a soft landing for the US economy. A notable macro development in 2023 is the precipitous decline in inflation. In many developed economies, inflation peaked around the middle of last year and has since trended downwards.

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