Experts from different institutions like the Bank of England, the International Monetary Fund (IMF), and other financial firms are raising alarms regarding the current excitement about Artificial Intelligence (AI) stocks, which has already overheated the market and could significantly bring along a risk of a global stock market crash.
Fear of AI stock bubbling up
Overvalued stocks: Recently AI company share prices have soared high, and are significantly overvalued, but the companies’ actual earnings and fundamental values dose not show any major changes in the growth.
Reflection of dotcom bubble: The current situation in the stock market is often compared to the internet bubble of early 2000s. Top tech companies like Nvidia, Microsoft, Apple, Alphabet and Amazon, at present captured about 20 percent of the MSCI World index (Morgan Stanley Capital International index), which is surprisingly double the concentration seen during the dotcom bubble.
High valuations: The S&P 500 (Standard and Poor’s) is reportedly trading at 23 times its future earnings, which is considered to be expensive.
Potential impact of crash
Signs of wealth eradication: If a market correction occurs that of the same magnitude as the dotcom crash, it could potentially wipe out over $20 trillion for American households alone. Globally, foreign investors could lose over $15 trillion.
Economic slowdown: Reduction in global wealth could significantly bring down the consumption growth which can hit and slow down the overall GDP (Gross Domestic Product) growth.
Global exposure: Though the fear of AI leading to a crash is presently centered in the United States, the global market’s reliance on US market could intensify the impact worldwide, affecting regions like Europe or Japan.
Warnings from experts
According to The Telegraph, Simon Adler from Schroders said that, “Bubbles are quite common. Typically, they happen within pockets of the stock market, and they can end up losing people a lot of money. What you have less often is a huge bubble across the whole stock market.”
Former IMF economist Gita Gopinath, warned about the current scenario in the global market, as it is preparing for another awful market correction which could be far more dangerous than the dotcom crash.
