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Nearly three years since ChatGPT’s launch sparked an AI-fuelled stock market frenzy, chipmaker Nvidia has become the first company to reach a $5trn valuation. Astonishingly, this figure matches Germany’s GDP.
Naturally, investors are drawing parallels between today’s stock market and the dot-com bubble that popped in 2000. So, are we witnessing speculative mania, or is this just the dawn of the AI growth story?
Since it was the catalyst for the hype, I thought it fitting to ask ChatGPT itself.
Boom, euphoria…panic?
The chatbot immediately flagged signs of a possible bubble. ChatGPT cited AI companies’ extremely rich valuations, which may exceed realistic earnings growth projections. This comes at a time when mega-cap tech stocks dominate the S&P 500 like never before.
Passive investors, take note. Many index funds, especially US-focused ones, have significant AI exposure, offering narrower stock market diversification than in decades past.
ChatGPT outlined two potential scenarios. First, it cautioned that AI stocks could plummet by up to 50%. However, resilience in other sectors, like energy and healthcare, would limit falls in the wider market to around 15%. In a more catastrophic scenario, ChatGPT suggested the market might nosedive by over 30%.
Although it acknowledged a collapse wasn’t inevitable, the digital doomsayer was unequivocal: “The AI bubble is likely to trigger the next stock market crash.”
ChatGPT’s limitations
How seriously should I take this warning?
ChatGPT’s a handy tool, but it produces information based on user prompts, rather than genuine understanding or conviction.
Its response to another question was revealing. I asked whether the rally in AI stocks was sustainable, reversing my original query’s premise. Surprisingly, ChatGPT said yes. Despite including some boilerplate caveats, there’s an obvious contradiction with its previous answer.
Clearly, the AI helper simply remixes sources and regurgitates data. It’s not an adequate substitute for thorough stock market analysis or a comprehensive philosophy like Warren Buffett‘s value investing approach.
AI isn’t the only game in town
For investors worried about a potential bubble, there are exciting stocks beyond the AI sector. One worth considering is Danish pharma giant Novo Nordisk (NYSE:NVO), which develops drugs for conditions like diabetes and obesity.
Weight-loss medicines are a hot healthcare trend right now. Novo Nordisk, the maker of semaglutide injections Ozempic and Wegovy, was once the undisputed champion in this arena.
Aggressive competition from Eli Lilly and its rival product Mounjaro has since eased Novo Nordisk’s stranglehold on the market. The group lost its first-mover advantage due to supply chain bottlenecks and limited manufacturing capacity.
It’s now battling for market share against copycat medications. Shareholders also face risks from possible new drug tariffs threatened by the Trump administration. Unlike skyrocketing AI shares, the Novo Nordisk share price has fallen 55% in 12 months.
But the stock looks cheap today at a price-to-earnings (P/E) ratio below 13. Promising trial results for a semaglutide pill could put the wind back into the firm’s sails. No company has yet secured regulatory approval for an oral version. Since many prefer pills to needles, this could be a gamechanger.
If the business regains its competitive edge, Novo Nordisk shares could rebound dramatically. This value investment play deserves a closer look in a stock market ruled by pricey AI companies.
