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There has been a lot of consternation on Wall Street over whether AI is causing a bubble on Wall Street: some say no; others say yes.
As investors debate whether or not AI is a bubble, the valuations of some of them Technology stocks may have more room to maneuver, Citi believes.
“We would note that these bubbles can last a year or more, similar to what happened in 1999 with the tech bubble,” Citi analyst Christopher Danely wrote in an investor note, adding that the bubble could last until 2025 as long as estimates continue to rise.
The area of the market that is most affected by the rise of artificial intelligence is semiconductors, with stalwarts such as Nvidia (NASDAQ:NVDA) and AMD (NASDAQ:AMD) experiencing huge jumps in ratings in recent times. Nvidia stock almost went up 2,000% in the last five years and Profit of 266%. in the last 12 months. AMD is up more than that 700% and 109% in the same period of time.
While these types of moves may bother some investors, the trend is likely to continue upward, Danely said.
Is this all 1999 again?
As was the case with the stock market bubble of the late to mid-1990s, valuations of technology companies have soared. However, unlike the last decade of the 20th century, the hype is based on something real, Danely said.
“This is one of the rare occasions where it’s different,” Danely explained, noting that artificial intelligence is expanding the total chip market. He believes the total addressable market for AI semiconductors has risen to $90 billion this year, up from $40 billion last year.
Some have predicted that this figure will be significantly higher in a few years, as Bank of America recently stated, the global AI accelerator market could reach a value of between $250 billion and $500 billion in the next three to five years, compared to a previous forecast of less than $500 billion. $250 billion.
“Given this growth opportunity and the 19% decline in semis last year, we believe semis should trade at a premium,” Danely said.
Danely believes 2024 is more like 1999 as valuations are likely to continue to expand. Valuations of high-tech companies didn’t “fall apart until late 2000,” she said, suggesting that stocks have a little more room to run.
Micron (MU) is Danely’s top chip pick, partly due to the resurgence of memory use for artificial intelligence. It also has buy ratings on AMD, Broadcom (AVGO), Analog Devices (ADI), Microchip (MCHP), and ON Semiconductor (ON).
Others, however, believe that the AI revolution is just beginning and that this is not a 1999-type environment.
“Let’s be clear: we have been dealing with technology on the streets since the late 1990s and this is not a bubble but rather the beginning of a fourth industrial revolution now upon us that will have major growth consequences for the software-led technology sector/ phase of use cases in motion,” Wedbush Securities analyst Dan Ives wrote in a research note earlier this week, referencing the recent sell-off in Nvidia stock.
“Tech stocks will not soar and will instead go through periods of digestion as more data is collected across the supply chain and IT spending landscape, which is a healthy process.”
Microsoft (MSFT), Palantir (PLTR), Salesforce (CRM), and Oracle (ORCL) are the main beneficiaries of Ives’ AI, a list that also includes cybersecurity companies like Crowdstrike (CRWD), Zscaler (ZS), and Palo Alto Networks (PANW) ).