Artificial Intelligence (AI). Bubble or Beginning?

Summary

The bull market continues with the S&P 500 up 7.2% year-to-date. There have only been minor pullbacks so far, with the market remaining above its 20 EMA, indicating a strong upward trend. AI and tech stocks like Nvidia, Microsoft, and Google are driving gains, justified by blowout earnings. We're likely only at the beginning of the AI revolution's impact, which could drive 10-15%+ annualized returns over the next 10-20 years. While a 5-10% pullback is still expected, the market has shown resilience, with investors piling back in on dips. Quality names like Google and Amazon still look reasonably valued for long-term investors.

Takeaways

• 😀 The S&P 500 and NASDAQ 100 continue to have a strong bull run in 2024, with only minor pullbacks so far
• 📈 High quality AI and tech stocks like Nvidia, Microsoft and Google are seeing huge earnings growth, justifying their share price gains
• 🔎 Nvidia's valuation shows it is not as overpriced as Cisco was during the dot-com bubble peak
• 💰 There is over $6 trillion in cash sitting on the sidelines, likely to flow back into the equity market
• 🤖 We are in a new AI-driven technological revolution (the 6th wave) which will transform lives and economies over the next 10-20 years
• 👆 This bull run is more sustainable than the dot-com bubble because companies have real earnings/cash flow growth now
• ⏳ Investing is a marathon, not a sprint - we are only at the 5-6 km mark of this long innovation runway
• 🔦 Some quality names like Google remain relatively cheap and can be bought on dips
• 😖 Don't chase stocks out of FOMO - wait patiently for 5-10% market corrections to buy
• 📉 Have cash ready to deploy when the inevitable pullbacks happen, as individual stocks can easily drop 10-20%

Q & A

What indexes and percentages show the bull market continues to be resilient so far in 2024?

The S&P 500 is up 7.2% year-to-date. It has not had any major pullbacks or corrections, only three small pullbacks less than 2%.

How is the NASDAQ 100 performing compared to the S&P 500?

The NASDAQ 100 is up 8% year-to-date, slightly more than the S&P 500. It has also only had minor pullbacks so far.

Which AI and tech related stocks are driving the market higher?

Nvidia, Amazon, Meta, Broadcom, ASML, and AMD are some of the main AI and tech stocks driving the market higher.

Despite great gains over the past year, why does the author think many of these stocks are not overly expensive?

Because their earnings growth is very high, often surpassing their share price increases, justifying higher valuations.

Why does the author think the stock market has become resilient to rising interest rates?

Because rates don't affect the large tech companies as much since they have little debt, lots of cash, and don't need to raise capital.

Why does the author think there is still over $6 trillion in cash waiting to enter the stock market?

Many investors missed the bull market and want to get invested. Also, money market rates may start dropping, sending investors to equities.

How does the author differentiate between hype and fundamental change when evaluating stocks?

By looking at the earnings growth. If earnings are growing as fast or faster than the stock price, the gains are likely justified.

How does the author think the potential impact of AI compares to past innovations?

He believes AI's impact will be 99/100, much bigger than the internet (50/100) or mobile phones (25/100).

Does the author think we are at the top of an AI bubble based on current valuations?

No. He shows how valuations and performance today are much lower than during the dot-com bubble peak.

What approach does the author recommend for investing during this AI-driven revolution?

Take a long-term, marathon mentality. Add stocks during pullbacks. And don't chase extended runs based on FOMO.