2024-09-06 10:04:40
Investing.com – The artificial intelligence (AI) sector is not in a bubble, according to Goldman Sachs (NYSE: ) strategists in a recent note, although there are still risks of concentration due to the dominance of a few corporations.
Since 2010, the technology sector has produced better returns for investors, contributing 32% to global equity returns. This progress, based more on sound economic principles than speculation, is partly due to disruptive technologies such as AI.
Even with a significant increase in its valuations, Goldman Sachs strategists claim that AI is not yet a bubble, but should “continue to lead earnings”.
The bank’s report highlights that the “Magnificent Seven” – important US technology companies such as Apple (NASDAQ:), Microsoft (NASDAQ:) and Nvidia (NASDAQ:) – now have a significant market share.
Artificial intelligence companies, driven by growing profits and the ability to make large investments in technology, are not an expression of irrational exuberance compared to valuations seen in previous bubbles, such as the dot com bubble in the late 1990s current valuations, which are in much lower than those seen during the tech bubble.
However, Goldman Sachs advises caution as market concentration has reached historic levels, with the top ten companies representing more than a third of the index and the top five companies responsible for 27% of the total value of the index.
The question then becomes: could the recent AI-led boom in the tech market be heading for a bubble? And, even if not, the risks associated with this high concentration could create a “dangerous trap” for investors, as strategists point out.
In turn, this could also be a “diversification opportunity for potential beneficiaries of these technologies through less dominant and more accessible companies,” they said.
Therefore, the bank considers that investors should “look to diversify exposure to improve risk-adjusted returns, and also gain access to potential winners among smaller technology companies and other areas of the market”, such as the traditional economy , which is expected to benefit from the increased spending on infrastructure.
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