Photo illustration by Jonathan Raa/NurPhoto via Getty Images
As the Magnificent Seven giants keep gaining, concerns of stock-market concentration are rising.
A bursting of the AI bubble could see a lost decade for stocks similar to the end of the dot-com boom.
Diversifying portfolios is key for investors to avoid losses if the bubble deflates, Richard Bernstein told Business Insider.
The artificial intelligence craze marches on, and with it, fears of growing concentration in the stock market.
Nvidia’s smash-hit earnings for the fourth quarter added $267 billion to its market cap on Thursday, more than Netflix’s entire value and setting a record for the largest single-day gain in history.
As the Magnificent Seven wrap up their latest earnings season, it’s fair to say that the AI trade is in full swing.
Yet, with such narrow leadership, analysts have warned of an AI-driven tech bubble reminiscent of two decades ago. Similar to that period, warnings are growing that the latest bubble will also burst.
“The important thing to remember is that bubbles ALWAYS center around a new technology or a new development. It’s a bit different in that so far…so far…it hasn’t resulted in widespread new issues,” Richard Bernstein, the president of Richard Bernstein Advisors said in an email to Business Insider.
The popping of the dot-com bubble ushered in a lost decade for the stock market.
From 1999 to 2009, the S&P 500 returned -1% per year, and the Nasdaq fared even worse at -5% per year (-6% per year for the Nasdaq 100).
“In fact, if one had bought NASDAQ at the peak of the Tech Bubble in March 2000, it would’ve taken nearly 14 years to simply break even,” Richard Bernstein Advisors wrote in a note last week.
Luckily, there’s a simple solution to avoiding the dot-com era fate that befell investors, RBA says: diversify.
“Shunning diversification has never been prudent, and that’s certainly true during bubble environments. The key to future returns may be simple, basic diversification.”
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