Stay informed with free updates
Simply log in to US stocks myFT summary — delivered straight to your inbox.
Investors’ rush into AI stocks this year has outstripped the technology’s near-term potential, raising the risks of a “correction” in stock prices, asset management firm Vanguard has warned.
Joe Davis, chief economist at Vanguard, said investors have gone too far in their bets on AI potentialeven if the technology turns out to have similar effects to the personal computer, whose adoption since the 1980s has revolutionized productivity and jobs.
The cautionary remarks by the world’s second-biggest asset manager add to a heated debate among investors over whether groups riding the artificial intelligence wave are overvalued after huge gains in recent months.
“We see about a 60 to 65 percent chance that AI is more influential than the PC. The U.S. stock market is about 90 percent likely today,” said Davis, who heads the $10 trillion asset manager’s investment strategy group.
Productivity gains from personal computers and optimism about their potential helped fuel the boom in stock prices in the latter half of the late 1990s that culminated in the bursting of the dotcom bubble in 2000.
“From an economic perspective, we are roughly in 1992, but from a market valuation perspective, I can argue that we are in 1997,” he added.
Rising stocks in artificial intelligence-related groups have been a key driver of a broader rally in Wall Street stocks, which has led the broad S&P 500 to gain 27 percent this year. Nvidiawhich makes chips essential to artificial intelligence, drove about a fifth of the S&P 500’s gains, jumping more than 180 percent.
Other big tech companies, which have placed big bets on artificial intelligence, have also rebounded, while private groups such as ChatGPT maker OpenAI they secured high values.
Davis warned that the companies most closely associated with the surge in investment in artificial intelligence may not ultimately benefit the most from it, however transformative it may prove to be in the years to come.
“Its companies outside of technology that actually use technology — hospitals, utilities, financial companies,” he said. “Meanwhile, you have new entrants coming into AI, so the return on investment in AI companies will decrease.”
He added: “The irony is that even if the technology actually is transformationalyou can still have a correction in the very share prices that led to the transformation itself.”
Davis cautioned that the timing of any withdrawal is hard to call: “I just don’t know if it’s going to start in 2025,” he said.
