Artificial intelligence is all the rage. With the hype initially created with the viral explosion
of ChatGPT, it’s all we hear about and how it will change everyone’s lives in the coming
years. If you follow earnings reports from various companies, seemingly every
management team’s golden ticket to receiving an increase in their stock price was to
simply talk about how they are utilizing AI, regardless of how the good or bad the
company’s actual quarter was.
It's led many people to think that we may be in a “bubble” or a “mania” regarding stocks
& AI. But does anyone ever truly know when we are within a bubble, regardless of what
the topic is? Well, like many aspects of investing, history tends to be our best guide.
We’ve seen plenty of bubbles & manias in the past decades, some larger than others.
For example, the dot com mania, the housing bubble, 3D printing stocks, cannabis
companies, SPACs & the metaverse, just to name a few. Let’s take a look at some
common characteristics that these past bubbles have had and if we may share some of
those common traits now.
1. Rapid stock price increases. Looking at some various companies that are
considered leaders in the AI movement, this definitely would seem to be the case. Many
have had extraordinary gains in very limited time.
2. Speculation rather than actual methodology. Many times manias are created by
what investors think may happen, rather than actual presentations of steps that
companies will take and the value that will be created.
3. Media attention. Bubbles & manias need fuel for their fires and that fuel comes in
the form of the media. They know that the next hot topic will draw viewer attention and
in turn, it creates a self-fulfilling prophecy. More investors are drawn towards the topic
and because of the influx of attention, it incentives the media companies to continue to
4. Herd mentality. A lot of FOMO occurs in manias. Investors do not want to be the
one that missed out on the next big thing. There is a lot of psychology when it comes to
investing and many people would experience more pain by being left behind than from
experiencing a loss, as long as the entire “herd” of investors experienced that same
So only time will tell if we are in a bubble regarding artificial intelligence. If you are
considering investing into companies you believe will benefit from AI, do so with
caution and understand that there is a huge amount of risk and can be significant