Professor Terence Lim of Sungkyunkwan University’s SKK GSB has warned in the newspaper column that the recent investor and corporate enthusiasm about AI technology may be another bubble in the making.

In his column titled "The More You Look, The More Expensive A Few Stocks are" in the Korea Economic Daily, Prof. Lim predicted, "The AI bubble will suddenly burst when the market realizes that AI application revenue models are not easy."

Since last year, the stock market's liquidity had increased despite the US Fed’s quantitative tightening and flooded into a few big tech stocks on the back of the investor enthusiasm for AI.

In the first half of this year, 55% of the S&P 500 index's rise was driven by NVIDIA, Microsoft, Eli Lilly, Meta, and Amazon.

Notably, NVIDIA 's stock price jumped from 25 times the expected earnings for 2024 at the beginning of the year to 45 times in just six months.

NVIDIA's current stock price reflects the massive AI-related investments already taking place and the expectation that these investments will continue to grow rapidly.

Jim Covello, Head of Global Equity Research at Goldman Sachs, pointed out the issues such as overly optimistic expectations for AI technology and the lack of concrete framework on how AI technology will be used to improve productivity.

As the economy starts to slow more visibly in the coming months and corporate earnings fall short of expectations, the companies will likely break free from the compulsion to invest in AI, which has uncertain returns. The market will also become more rational.

The U.S. economy is already gradually cooling, and the liquidity that fueled the stock market's rise is now ebbing.

It is generally the most appropriate time to hedge against the eventual stock market correction when everyone is steeped in optimism.

Original article: : https://www.hankyung.com/article/202407183040i