Wharton professor and economist Jeremy Siegel has expressed optimism about the potential for a Big Tech boom driven by artificial intelligence (AI) despite concerns of a bubble. The AI chip craze, which is driven by demand for AI-powered chatbots and high-powered graphics processing units used to train such chatbots on supercomputers, has seen investors piling into certain stocks, raising concerns of a bubble. However, Siegel believes it is not a bubble yet and that investors need not worry about a repeat of the dot-com bubble in the late 1990s.
Siegel attributes the current AI boom to two factors: excitement about AI and Nvidia’s blowout earnings. Shares of Nvidia rallied 24% after the company posted better-than-expected top and bottom lines in the recent quarter. The demand for Nvidia chips used in AI has exploded, propelling the chip maker’s market capitalization to nearly $1 trillion. Nvidia CEO Jensen Huang said during the earnings call that the company was seeing “surging demand” for its data center products. Nvidia shares are up 166% year-to-date.
AI Stocks Could Help Lift the S&P 500 in the Long Term
Siegel believes that the AI boom could potentially lift the S&P 500, which has been largely driven by the top eight or nine companies. He noted that this year, the other 490 companies have been flat or down. According to Siegel, big cap stocks, whether they are in the tech sector or not, do not have to worry about credit conditions, although they do have to worry about interest rates. Small and mid-size companies, on the other hand, are more vulnerable to credit conditions.
Siegel also discussed Nvidia’s new class of large-memory AI supercomputer, powered by Nvidia GH200 Grace Hopper Superchip, which is expected to provide nearly 500 times more memory than the previous generation Nvidia DGX A100. Huang said that the supercomputer will enable the development of giant, next-generation models for generative AI language applications. Siegel believes that generative AI, large language models, and recommender systems are the digital engines of the modern economy.
While Siegel acknowledges that AI stocks may be slightly overvalued in the long term, he believes that momentum can carry stocks far higher than their fundamental value, and no one can predict how high they might go. The AI chip craze and the potential for a Big Tech boom driven by AI are expected to continue, despite concerns of a bubble. However, investors should be cautious and keep an eye on credit conditions and interest rates.
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