Is now a good time to buy stocks? High valuations have investors starting to take a second look at artificial intelligence (AI) investments and this has wider implications for share prices.
Given the focus on AI at the moment, I thought I’d see what ChatGPT made of the situation. It didn’t give a particularly insightful answer, but maybe that’s what I should have expected.
AI insight
ChatGPT’s answer was a bit strange. Its general view was that short-term traders should sit tight, but that long-term investors might want to consider buying.
The basic idea is that high valuations might lead to volatility over the next few quarters. But for those who can wait it out, there’s a decent chance that things will turn out well.
I’m not convinced by this idea. If the risk of share prices going down is enough to warn short-term traders, then I think it’s something long-term investors should also consider.
But the big question is whether there’s enough evidence that this is likely to happen to justify staying on the sidelines for now. And I’m not convinced there is either.
2000 again?
The thing worrying investors at the moment is AI. They’re right to pay attention – AI spending is pretty much the only thing moving the US economy forward right now.
During the 2000 dotcom crash, Cisco shares fell 90% from their highs. And despite a 700% gain since then, the share price hasn’t fully recovered a quarter of a century later.
Microsoft, though, also fell 60%. But unlike Cisco, the stock is up 1,900% and even investors who bought at the peak have managed outstanding returns since then.
The difference is that one company managed to keep growing its earnings much faster than the other. And that gives investors a clear sense of what to look for right now.
Opportunities
Apple (NASDAQ:AAPL) hasn’t really participated in the AI arms race. Instead, it’s watched from the sidelines as other firms spend heavily on building LLMs and AI infrastructure.
As a result, the stock has underperformed some of its rivals over the last 12 months. But I think the company’s strategy might turn out to be a very good one over the next few years.
If LLMs ultimately turn out to be a commodity, then the firm’s decision to stay out of the race will have saved shareholders hundreds of billions. And there’s a chance this could happen.
Even if they don’t, though, Apple should still be in a strong position. Alphabet decisively won the internet search battle, but the iPhone manufacturer still profits to the tune of $20bn a year.
Investing
Apple shares aren’t a risk-free investment – there’s a constant threat of antitrust action that shows up every so often. But it is well-insulated from the threat of overinvesting in AI.
Investors wary of an AI bubble might want to look at shares that have a decent chance of doing well on the other side. Apple is one example, but it’s not the only one on my list right now.
