Many asset owners and investment experts, including Manoj Soni of Capricorn Private Investments and Johanna Kyrklund, Group CIO at Schroders, maintain that the current market, while expensive, is not yet in a bubble. Soni notes that current stock valuations are significantly lower compared to the last tech bubble. Similarly, Kyrklund states that equity valuations are not at extremes and believes that markets are supported by stable bond yields, contained inflation, and anticipated central bank easing.
Goldman Sachs also contributes to this perspective, acknowledging the increasing concentration of the US market around the tech sector but arguing that this concentration, although potentially unsustainable, does not equate to a bubble destined to burst. They highlight that historical periods of high market concentration haven't always ended in a crash, and dominant sectors often remain key economic drivers for extended periods. However, both Goldman and Soni recognize the inherent excitement around new technologies, suggesting that an AI bubble could still form.
Despite the general consensus against a present bubble, some analysts, particularly those from Schroders, have explored potential risk scenarios. One such scenario suggests an AI-driven equity bubble could burst in Q3 if the sector fails to meet its elevated expectations, leading to a pull back in capital expenditure and a broader market sell-off, potentially causing a mild recession. Conversely, Schroders also considers a scenario where rapid AI adoption fuels strong, investment-led economic growth, although this could also lead to increased unemployment due to automation. Claire Smith, another Schroders expert, also notes that while AI is reshaping some software, the fears of widespread disruption are overblown, with only about 2% of their software holdings being high-risk.
