There’s been much discussion about the possibility of an AI bubble of late. Of course, not everybody has the risk tolerance or conviction to make bearish bets on the highest-flyers within the hottest corners of the AI chip scene as Dr. Michael Burry has.
But for the average retail investor, the big takeaway might not lie in shorting the heated names (that seems like a recipe for disaster, given that timing a bubble is next to impossible to do with enough precision to make big money in put options), but taking a moment to think about what the shrewd move is after a parabolic (or completely vertical) move is in the books.
Given the market action we’ve seen this year, there’s every reason to believe that the AI revolution is real. But just like the dot-com boom, there are certain corners of the market that stand to get way overheated, bringing forth the need for a vicious correction or crash. But, of course, a crash in pockets of the market doesn’t have to drag everything down.
That latest spike in semis might stoke AI bubble fears
For the most part, I view much of the market as quite sober right here. And if something like the VanEck Semiconductor ETF (NASDAQ:SMH | SMH Price Prediction), which spiked close to 30% in a month or 55% year to date, were to give back much or all of the gains, I wouldn’t expect other AI firms to fall in sympathy. In my view, the Magnificent Seven trade, perhaps with the exception of Tesla (NASDAQ:TSLA), is still not obscenely priced.
Arguably, some of the cheapest members of the group stand out as pretty great deals with not all that much in the way of AI hype that’s baked in. And when you consider the custom silicon efforts going on in the modestly-priced hyperscalers, I do think that there’s considerable relative value that’s pretty much hiding in plain sight.
Of course, the Mag Seven are names well-known and owned by most of us. But I think the case for overweighting some of the seven, even as the semi frenzy grows out of control, is getting stronger. Now, make no mistake, there are bound to be colossal winners and losers within the semis, but at these heights, I’m not so sure if the risk/reward is in favor of investors. Either way, I think sticking with modest valuations could be key to enjoying the shot in the arm from AI without risking too harsh a hangover later on once the next big correction hits the highest-flying corner of tech.
Meta Platforms: A pocket of value amid the AI frenzy?
I’d rather reach for a name like Meta Platforms (NASDAQ:META), which has already taken a hit amid an underwhelming quarter and a CapEx scare. In essence, the band-aid has been ripped off in one go, and momentum-seeking investors have since moved onto timelier, hotter trades. For investors looking to play the long-term game, though, I think there’s a ridiculous amount of value to be had.
Shares recently sagged low enough that the forward price-to-earnings (P/E) multiple hit 19.5 times. That kind of multiple does not make a lot of sense to me. Actually, that kind of multiple makes Meta stock look like the opposite of a bubble.
Meta’s latest Muse Spark might not be as impressive as the models of frontier innovators are, but the company has a car in the race. And as its CapEx forecast (up to $145 billion) suggests, Zuckerberg and company are flooring it on AI.
With a decent initial debut, I think investors should be willing to give Meta’s superintelligence labs more of the benefit of the doubt. Though it might seem outlandish to think the team has what it takes to compete shoulder to shoulder with Anthropic’s Claude, let’s just say I would not be surprised if such a move forward were to be in the cards in the next year, given Meta’s current trajectory.
Meta actually looks like an early AI winner
It might be perceived as “behind” in AI for now, but it’s hard to deny that it’s an early winner, given that the technology has already helped power real growth. It’s a major efficiency driver. But it seems none of that matters when the spend is so high and user growth is showing subtle signs of leakage.
Add the MTIA chip progress, which looks heavily discounted by the market right now, into the equation, and I think many investors are at risk of missing Meta after already falling heavily out of favor.
If a bubble in AI were to go bust, Meta is one of the names I’d expect could be spared, at least for the most part. Who knows? It might even rally as the more heated names come in.
Top Gaining Stocks
Top Losing Stocks