AI Revolution: Mega Cap Tech Stocks Lead the Way

2023-08-01: Large cap stocks in the U.S., particularly in the technology sector, have once again emerged as the top performers, driven largely by interest in AI technologies.  As of June 15, the leading seven technology stocks have recorded a impressive 65% return for the year, with Nvidia leading the pack at an exceptional 190%.  Moreover, Apple's market capitalization has surpassed that of the entire small-cap Russell 2000® Index.

 

Excluding these top-performing tech giants, the S&P 500's return has been only 3.8%, compared to 16.2% overall. Goldman Sachs has speculated that AI could enhance U.S. labour productivity growth by 1.5% annually over the next decade and boost profit margins significantly.

 

The effects of AI may unfold faster than previous technological revolutions like electricity and the internet, due to quicker adoption and the immediate impact on growth and productivity. However, pinpointing the investment winners and losers is complex, with potential benefits for specialized chip-makers and large data handlers, and losses for companies with obsolete technologies.

 

There are concerns about AI's potential monopoly power and whether the technology may lead to a speculative bubble akin to the 1990s tech craze. While current economic factors may contain AI enthusiasm, low interest rates in the future could trigger speculative excess. As AI continues to grow, it remains a investment to watch closely.

 

The 2001 Tech Bust: A Reminder

 

The tech bubble of the late 1990s was characterized by a rapid and significant surge in technology stocks, fueled by excitement around the emerging internet and tech sector. Investors poured money into dot-com and tech companies, many of which had little to no profit, driving valuations to unsustainable levels. This frenzy culminated in the bust of 2001 when the bubble burst, leading to a sharp decline in tech stock values. Many companies failed or saw their stock prices plummet, wiping out vast amounts of wealth and marking the end of an era of unbridled optimism in the tech industry.