If you’ve tuned into your favourite financial news show, you’ve probably heard the term “AI bubble” being thrown around from left, right, and centre. Indeed, it’s pretty unnerving to hear that such a revolutionary technology might be overhyped in the near term.
And with various “warning signs,” (or at least what some would deem as such) including vendor financing (GPU makers investing in the businesses of their AI customers), which may give some a reminder of the events that unfolded before the internet bubble burst, sending the broad stock market crashing in the years that followed, I think investors should take a deep breath and step back from the television if they’re feeling worried.
Indeed, the bubble talks may or may not accelerate with every upward move in the broad markets. While there’s a strong argument for why there is a bubble in AI, I’d argue there’s an equally strong one for why there isn’t, or, at the very least, why things won’t be as bad as the great stock market crash of 2000 and 2001.
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AI bubble fears are inflating. But is there even a bubble in the markets?
Now, there’s no denying that stocks are running hot and valuations are starting to get uncomfortably high, but pricey multiples do not necessarily mean stocks are going to fall off a cliff at some point over the near term. Indeed, timing the market may be tempting at a time like this. After all, nobody wants to be caught skating offside with AI stocks after they’ve heard non-stop warnings about the AI bubble, right?
Either way, I think investors should stay the course, as always, and take any random pundit’s AI bubble burst prediction call with a very fine grain of salt.
Nobody can time the markets with precision every single time, and I believe many overly bearish folks with doomsday-like predictions aren’t taking into consideration that AI has made many of today’s companies much more deserving of a premium. Indeed, the great AI tailwind could really make today’s companies and their fundamentals far more attractive, which, in turn, makes them worth more today.
And while I’m sure some speculators are piling into crowded AI trades that could be destined for a painful ending, I wouldn’t start panic-selling on the “AI bubble” talk right now, especially if you’re investing in the blue chips and not the red-hot momentum stocks that have doubled up many times over the past couple of months.
If you’re sticking with tried-and-true stocks with strong fundamentals and fair multiples, perhaps there’s not much to worry about as investor sentiment grows increasingly concerned. If earnings still march higher on AI demand, I think there’s plenty of reason to stay invested or even buy more stocks in areas that won’t be in the blast zone come the next inevitable market correction, which, I think, we’ll eventually be overdue for in the coming months.
Fortis stock: A great buy if you’re worried about an overheated market
Either way, if you’re a new investor who’s worried that a handful of heated AI names may blow up and (unfairly) drag down the market, perhaps it’s time to think about playing defence with a utility like Fortis (TSX:FTS). The steady 3.4%-yielder is poised to enjoy predictable, single-digit growth in the coming years as its capital plan starts literally paying dividends.
With a multi-decade track record of growing dividends and the potential to benefit from lower interest rates and increased demand for power via the AI data centre boom, I’d look to the 0.35-beta defensive dividend payer as a place to park some cash.
With FTS shares soaring close to 22% year to date, they have become quite rewarding for those seeking capital gains. If you’re looking for a low beta, a rock-solid dividend, and predictable single-digit growth, look no further than the utility gem, which might get a bid higher once volatility rockets higher, either due to cracks in the AI trade or some scary macro event.
