If you’ve been following your favorite financial news program, you’ve probably heard the term “AI bubble” left, right, and center. It is indeed quite unnerving to hear that such a revolutionary technology could become overhyped in the short term.
And with several “warning signs” (or at least what some would consider such), including vendor financing (GPU makers investing in their AI customers’ businesses), which may give some a reminder of the events that occurred before the dot-com bubble burst, causing the broad stock market to crash in the years since, I think investors need to take a deep breath and take a step back from the television when they are worried.
The bubble talk may or may not accelerate with any upward movement in the broad markets. While there’s a strong argument for why there’s a bubble in AI, I’d argue there’s an equally strong argument for why there isn’t a bubble, or at least why things won’t be as bad as the great stock market crash of 2000 and 2001.
Fears of AI bubbles are increasing. But is there a bubble in the markets at all?
There’s no denying that stock prices are running high and valuations are starting to get uncomfortably high, but expensive multiples don’t necessarily mean that stocks will fall off a cliff at some point in the short term. Timing the market can be tempting at a time like this. After all, no one wants to get caught out of AI stocks after hearing non-stop warnings about the AI bubble, right?
Regardless, I think investors should stay the course as always and take any expert’s AI bubble burst prediction with a very fine grain of salt.
No one can time the markets exactly every time, and I believe many overly bearish people with doomsday-like predictions fail to take into account that AI has made many of today’s companies much more deserving of a premium. The big tailwinds from AI could really make today’s companies and their fundamentals much more attractive, which in turn makes them more valuable today.
And while I’m sure some speculators are jumping into crowded AI trades that could be destined for a painful end, I wouldn’t panic sell on the “AI bubble” talk right now, especially if you’re invested in the blue chips and not the red-hot momentum stocks that have doubled many times over in recent months.
If you stick with proven stocks with strong fundamentals and reasonable returns, you may not have much to worry about as investor sentiment becomes increasingly concerned. If profits continue to soar higher thanks to 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 explosion zone due to the next inevitable market correction, which I think we’ll ultimately be too late for in the coming months.
Fortis shares: a great buy if you’re worried about an overheated market
Anyway, if you’re a new investor who’s worried that a handful of hot AI names will explode the market and (unfairly) drag it down, it might be time to think about playing defense with a tool like Fortis (TSX:FTS). The steady 3.4% interest rate is poised to enjoy predictable single-digit growth in the coming years as the endowment plan literally starts paying dividends.
With a decades-long track record of growing dividends and the potential to benefit from lower interest rates and increased demand for power via the AI data center boom, I’d look at the 0.35 beta defensive dividend payer as a place to park some money.
With FTS shares up nearly 22% so far this year, they’ve become quite rewarding for those looking for capital gains. If you’re looking for low beta, a rock-solid dividend, and predictable single-digit growth, look no further than the utility gem, which may see a higher bid once volatility soars, either due to cracks in AI trading or a scary macro event.
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