Apollo has said that the current AI bubble is bigger than the 1990s tech bubble.
"The top 10 companies in the S&P 500 today are more overvalued than the top 10 companies were during the tech bubble in the mid-1990s," noted Torsten Sløk, chief economist at Apollo Global Management, in The Daily Spark.
Sløk's observation comes on the heels of chipmaking giant Nvidia becoming the first company in the semiconductor industry to reach a $2 trillion market valuation. This milestone was driven by the AI industry's boom. Nvidia surpassed Amazon and Google parent Alphabet to become the third-most valuable company in the U.S. by market cap the previous week. Despite concerns among investors that the rally had gone too far, Nvidia reported a 270% increase in revenues from the previous year to $22 billion in the fourth quarter, beating Wall Street expectations.
"Accelerated computing and generative AI have hit the tipping point," said Nvidia founder and CEO Jensen Huang. "Demand is surging worldwide across companies, industries, and nations."
Following Nvidia's earnings report, some investors and analysts expressed caution about its future performance.
"Another blockbuster quarter from Nvidia raises the question of how long its soaring performance will last," said Jacob Bourne, a senior analyst at Insider Intelligence. "Nvidia’s near-term market strength is durable, though not invincible."
On the other hand, a study from Citigroup suggested that the stock rally is not necessarily cause for concern.
"The AI bubble is not in trouble, and, if anything, earnings performance suggests that it is less of a bubble to begin with," said a team of quantitative strategists at Citigroup. They added that if a stock rises over 10% on an earnings day (Nvidia's rose 16% on its earnings day), then "those large-caps with strong performance into earnings continue to perform very well for the next three months."
