Jeffrey Gundlach says the AI boom has pushed US equities into one of the most speculative phases he has ever seen throughout his 40-year career.
In a new Bloomberg Odd Lots interview, the billionaire ‘Bond King’ says valuation metrics across the market have now detached from fundamentals.
“I think valuations are just incredibly high. And the health of the equity market in the United States is among the least healthy in my entire career in terms of the PE (price to earnings) ratio, the CAPE (cyclically adjusted price to earnings) ratio, all the classic valuation metrics are off the charts. And of course, the market is incredibly speculative. And speculative markets always go to insanely high levels. It happens every time.”
Gundlach compares today’s AI and data center surge to prior episodes in which transformative technologies sparked dramatic boom-and-bust cycles.
“Obviously, it happened in the dot coms. It happened in the financials, part of the GFC (Great Financial Crisis). It’s happening now in the AI and data centers and all that stuff.”
He cites the electricity boom of the early 1900s as a near-perfect parallel. Gundlach also says the market has a tendency to drive prices ahead of reality.
“And so electricity stocks were in a huge mania, and they did incredibly well. But the relative performance of electricity relative to the entire stock market in the US, excluding electricity… the electricity outperformance peaked in 1911. Houses weren’t even broadly electrified by that [time]…
And so it all gets priced in very quickly and excessively, because people love to look at the benefits of these transformative technologies. And they are transformative.”
He notes that even companies left standing can still see enormous drawdowns.
“Look at what happened to some of the internet stocks. They dropped 80, 90% in the early [2000s], but there were many, many multiples of what their peak was at that time.”
For now, he says the fear of missing out has overtaken discipline.
“So I think that one has to be very careful about momentum investing during mania periods. And I feel like that’s where we are right now. And I just don’t think there’s any argument against the fact that we’re in a mania.”
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