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The AI stock crash is just beginning
AI can still be dominating the financial headlinesbut investors should be wary when much of the narrative for these stocks is focused on euphoria and the potential for explosive growth.
At least that’s what Drew Pettit, head of U.S. equity strategy at Citigroup, says.
Petitt — who warned of a pullback in AI stocks in early July — says fairly straightforward warning signs for investors include “when [a stock’s] the price moves very, very, very fast.”
Another is when it appears that most shareholders are not really informed, basically buying shares because they fear missing out on earnings.
“I feel like when it comes to AI, most investors have no idea what these companies are doing,” he told Yahoo Finance’s executive editor. Brian Sozzi in your Initial bid podcast (watch the video above or listen to here).
The recent highs in tech stocks seem like a distant memory, serving as a lesson for investors.
The Nasdaq Composite has fallen about 6.5% since mid-July on fears of overvaluation in AI names and mixed earnings results from companies like Alphabet (GOOG, GOOGL) and Microsoft (MSFT). AI darlings like Nvidia (NVDA) and AMD (OMG) are down 15% and 17%, respectively, during this period.
This ripple effect on technology could spell trouble for investors across the board in the coming months and quarters, and betting on AI and technology could be equally worrying.
Pettit says that on both the buy and sell side, it remains a mystery to most what these AI companies will do in the next five years.
Their presentations about specific chips or products are more tangible, but “the market is pricing in what the company will become [while] not knowing what they will become,” he said.
A pullback in stocks brings us closer to financial and valuation reality, according to Pettit, who said we are not in a bubble yet as companies continue to beat and raise guidance. But he cautions that companies need to beat and raise in the coming years.
“To me, you see a broadening of AI because it can’t just be one or two names that win for this to be the next best thing,” he says. “It has to attract a lot more stocks, a lot more types of companies.”
He favors AI from a structural standpoint and sees space as a game-changer. “It’s one of our main themes,” he said.
Three times a week, executive editor of Yahoo Finance Brian Sozzi Insightful, market-focused conversations and chats with the biggest names in business Initial bid. Find more episodes on our video center. Watch on your preferred streaming service. Or listen and subscribe at Apple Podcasts, Spotifyor wherever you find your favorite podcasts.
Below Initial bid episode, chief investment officer at Morgan Stanley Mike Wilson explains why he is looking for a 10% correction in the stock market.
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