Artificial Intelligence is moving quickly towards a bubble situation. It is on this consideration that the last episode of the podcast is based "On the 4th floor"With Alessandro Fugnoli. An episode in which the strategist of Kairos Partners Sgr explains how to behave to "invest wisely", using "science and conscience".
The general advice, when faced with situations like this, always remains the same: "you need to study a lot and never forget, especially when managing other people's money, the healthy principles of caution and responsibility”, says Fugnoli. The problem is that it is easier said than done at a time when the temperature on the markets is rising and the inhibitory brakes are loosening. But we must always keep in mind that, without due care, no one will ever be able to ride a bubble without being overwhelmed when it inevitably bursts.
"In the coming months we will all live in a bubble situation." says Fugnoli. So what to do? First you have to recognize it and then appear accordingly.
How does a stock bubble arise?
"Every stock bubble that respects itself needs two things,” explains the strategist. Condition number one: a favorable macro framework.
This picture currently exists and is given by the global economy which, despite all the difficulties, continues to maintain good growth rates and the expectation for the end of the upward cycle of interest rates. “Growing economy and falling rates (even if less than the market expects) mean, in general, a green light for the stock markets,” says Fugnoli.
Then comes the second condition: a fascinating story, which makes you dream"something immeasurable and never seen, in front of which the world will divide" between skeptics and believers. Artificial Intelligence It lends itself perfectly to this type of narrative.
“Now it doesn't matter that'Generative Artificial Intelligence, the one we are talking about, is actually not intelligent at all. What matters is that it will still be very useful on a large scale and that it will be requested by everyone. It matters even more that it is seen as springboard towards forms of authentic intelligence, whether true or not”, comments the economist.
The Artificial Intelligence bubble
“The bubble will not be eternal and will be punctured the day it is announced the beginning of a rate hike cycle,” predicts Fugnoli. But in the meantime, what will happen? “Some companies that have become too indebted in their desire to grow will end up bankrupt – he explains – Many others will suffer severe price cuts but will survive and recover over time”.
At the moment the sector is focusing on big techs whose multiples, while generous, are not crazy. Many of the smaller companies are still privately held. They pass from one hand to another, but are not listed, also because the Venture Capital that follows them earns more with private transactions than they would earn, just once, with a listing on the stock exchange. “This will come, let's not doubt it, but it will happen the signal that the bubble is now mature and it becomes riskier,” warns the strategist.
Artificial Intelligence Bubble: what should we do?
"Compared to Internet bubble we are in a better situation for now”, says Fugnoli. The reason is easy to say: concentration in a few very large, financially sound companies pays off the context is less dangerous.
Hence, the advice: “We believe that even a modest exposure the sector can produce good performance improvements across the entire portfolio in the next 12-18 months. The secret will be absolutely do not give in to greed and to never forget that all bubbles end”, concludes Fugnoli.
