A year ago, when the prospect of rising interest rates began to cast its shadow over markets and client portfolios, and inflation seemed out of control, one of the most popular prophecies among market commentators was the end of the golden age of tech stocks.
With the era of ultra-cheap liquidity, it was said, the mega-valuations of growth companies would also come to an end, including big American giants like Apple and Alphabet. The astonishing multiples, it was thought, would no longer be justified, and the promise to continue generating growth would become more difficult to maintain.
The market, it was said, would shift its focus to profitability, rather than growth at all costs.
To the surprise of many, today we find ourselves facing a new boom in the Nasdaq, an index that in recent years has reached a level of gravitational attraction capable of carrying the fortunes of all global equity investors on its own.
But what unleashed the bull? Ask ChatGPT.
The frenzy sparked by the popularisation of generative artificial intelligence (AI) has reminded us that we are on the brink of a new industrial revolution. Forget about malfunctioning prototypes, customer support chatbots that misunderstand things. Just a few months ago, you would have read in any report that the AI revolution would be slow to arrive or that automation would only affect the most repetitive tasks.
Try asking yourself the same question today. It seems that investors have woken up on a station bench, with the last call of the train heading towards the future in their ears, and they are rushing towards the first carriage they find in front of them, hoping it’s the right one.
Bubbling up?
But are we in the foothills of a fresh bubble, or of a major market opportunity?
The company symbolic of this strange phase is Nvidia, the latest addition to the club of mega-corporations with a market capitalisation of over a trillion dollars.
The company manufactures microchips and until a few years ago was known to most for the graphics cards installed in many computers. These hardware components are necessary for the supercomputers that support artificial intelligence-related technologies, and so investors have latched onto it as a way of owning an established company, but also potentially capturing the investment opportunity associated with Artificial Intelligence.
The result is the shares are up 244 per cent year to date (as at August 2, 2023), and the stock has come to symbolise for many market participants the beginning of a new bubble, reminiscent of the "dot com crash" at the start of the millenium.
