Is there an Artificial Intelligence bubble? Nvidia reports results

David Rainville, Fund Manager, Sycomore AM (part of Generali Investments’ ecosystem)

Doubts about the possibility of a bubble around the great innovation of Artificial Intelligence is a recurring question among investors these days, given the performance of the sector. However, we believe this is not a bubble as the strong performance of the sector is driven by the Magnificent 7, not a broad bid for tech. For example, the Nasdaq Equal Weight is underperforming the Nasdaq by more than 20% over the last 12 months.

When thinking about the excitement around AI, a bubble could eventually develop, however, we believe that we are only in the beginning if a bubble was to form. For example, Nvidia which is the company that is most linked to AI investments, is trading at less than a 30x 2025 EPS consensus. To put that into perspective, at the height of the covid bubble, Nvidia shares were trading closer to 60x forward EPS. In our view, investors can still be invested in technology, and in AI. For us, we are currently much more focused on the rate of technological changes that we have seen in the space over the last 18 months, from GPT 3 to GPT Turbo, to DALL-E (image generation) and now NORA (AI video generation by OpenAI), rather than the potential of a bubble. We believe that we are in the early days of this technological innovation (and investment) boom.