Banking titan JPMorgan Chase warns that the stock market’s biggest threat may not come from politics or policy – but from the AI trade.
Kerry Craig, a global market strategist at JPMorgan Asset Management, says one factor tied to artificial intelligence could carry more weight than geopolitical tensions in determining whether the record-breaking rally holds, reports Bloomberg.
“There’s so much focus on AI, that some disappointment could lead to a bigger pullback.”
Craig points to the surge in spending by hyperscalers, cautioning that valuations leave little room for error.
“If those aren’t translated into revenues, you could see the market start to reconsider the earnings growth of some of these companies at these valuations.”
JPMorgan Chase is not alone in issuing a warning to investors. Billionaire “Bond King” Jeffrey Gundlach warned that the AI mania is a frenzy that has already happened in history.
He said that a similar mania phase emerged over 30 years ago, but the market was quick to price in the fundamentals.
“But it seems a lot like kind of the fiber optic stuff back in the late 1990s, where it’s very real, it’s happening, it’s going to be world-changing, but the markets are incredibly efficient at pricing things in and often overdo it.
So I am not a momentum person at all, unless there’s a fundamental reason, and momentum driving things, very high valuations, that’s just, I don’t, if there’s one thing that makes me not sleep at night is owning stuff like that, and that’s just me.”
He also warned that those who are late to the AI trade will likely be disappointed.
“For some people, they’ll make a fortune on it, but I think the fortunes have largely been made.”
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