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Welcome back to the Sunday Edition of The Chart Report!
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The chart below from Bank of America made its rounds this week, as many call Artificial Intelligence the latest bubble.
On the topic of bubbles, legendary investor Seth Klarman once said...
"At the root of all financial bubbles is a good idea carried to excess."
The dot-com bubble in the early 2000s was based on the idea that the internet would be the future. That idea was indeed true! The problem was it took twenty years to come to fruition.
If AI is a bubble, it's likely in its infancy, and we could see speculation get crazier before it pops.
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Another investing legend, George Soros, once said...
"When I see a bubble, I rush in to buy it.”
In other words, there's money to be made in bubbles.
Sure, bubbles are dangerous for novice speculators that fall for the narrative. But no trend lasts forever, and there's no shame in getting involved if you manage risk properly.
AI might be a bubble, but it could continue to inflate before the public piles in and the last marginal buyer is stuck holding the bag.
I don't think we're there yet.
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There aren't many pure plays when it comes to investing in AI.
$BOTZ and $ROBO are often cited as AI ETFs, but the components aren't strictly AI companies.
I'm sure we'll see more AI-themed ETFs come to market in the coming months, but there's no obvious stock or ETF for this theme yet.
Many believe $NVDA will be the biggest beneficiary of a potential AI revolution. It's been surging higher in recent months, but that doesn't mean it's a bubble.
Bubbles often end with a parabolic rise to unprecedented price levels.
$NVDA hasn't even broken its 2021 highs yet, and this isn't the type of parabolic move you see when a bubble is about to pop.
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If anything, $NVDA is setting the stage for a new leg higher, as it's formed an 18-month base within a strong secular uptrend.
Using Fibonacci as a guide, a breakout to all-time highs would open the door for a +50% rally to $495.
We may be getting ahead of ourselves as $NVDA hasn't broken out yet. But this is not what a bubble looks like...at least not yet.
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Thanks and have a great week,
Patrick Dunuwila, CMT
Editor of The Chart Report
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