AI bubble that could make dotcom look like blip – evaluations are borderline obscene | Personal Finance | Finance
When America sneezes, the rest of the world catches a cold. So goes the saying and, looking at how global stock markets have reacted to US recession fears today, it has once again proved true. There’s a lot going on across the pond at present, from concerns about an AI bubble about to explode, the ongoing impact of Trump’s tariffs and, finally, ominous forecasts about the mighty US economy from people right at the top.
When someone on the Federal Reserve Board of Governors, in this case Christopher Waller, warns of “eye-popping” lay-offs to come, there was only ever going to be one outcome: panic. That was the catalyst of this morning’s calamitous events in the markets. But things run deeper than that and a lot of the current malaise lies firmly at Trump’s door.
When the US recession does hit, and I think it will, it will largely be a self-inflicted wound. It’s taken a while, but Trump’s tariffs are really starting to bite US businesses.
Retailers and importers have tried sucking up the cost but there’s only so far they can go. And job losses are the result. Trump claims to be a top businessman, but his ill-thought through tariffs have taken his country to the brink.
The economic turbulence triggered by the tariffs has hit consumer and business confidence hard. Spending is significantly down on where things were a year ago.
Main Street is not putting its hands in its collective pockets, and the worry is that this spills over into the busy – and crucial – thanksgiving period.
Businesses are also facing much higher interest rates than only a few years ago and, as Trump likes to tell us, rates aren’t falling as quickly as he would like because inflation is entrenched in the system.
Investors are also increasingly concerned about an AI bubble that could make the dotcom bubble of the early 21st century look like a minor market blip.
Some of the valuations of leading AI stocks are borderline obscene. And there are growing worries that the tech may not quite be there yet to deliver on those valuations.
In short, that investors may have jumped the gun and piled in too quickly and too aggressively. Of course, nobody ultimately knows.
For the average investor, the key is to remain diversified geographically and at the sector and asset class level. Long-term financial security comes from a diversified portfolio that can withstand any market shocks — not having the bulk of your wealth resting on a small selection of US tech stocks.
AI, almost certainly, is the future, but that future may take longer to arrive at than some expect.
Lastly, it’s worth noting that legendary investor, Warren Buffet, is currently stockpiling cash as he continues to offload equities in the US. And Buffet is rarely wrong.
Samuel Mather-Holgate, Independent Financial Adviser at Swindon-based Mather and Murray Financial
