A speculative bubble in tech stocks may be starting to form, Jeremy Siegel said. The "Wizard of Wharton" said Nvidia could rise further, but the tech rally would eventually stall. Siegel said he isn't worried about the US economy overheating, and inflation seems under control.
Warning Signs of a Speculative Bubble
The breathless hype around technology stocks like Nvidia is nearing dangerous levels, Jeremy Siegel warned. He mentioned that the beginnings of a speculative bubble may be forming, but determining its end remains uncertain. In his weekly WisdomTree commentary, Siegel highlighted the potential risks associated with the current tech stock frenzy.
Unprecedented Surge in Nvidia Stock
Nvidia stock has witnessed an unprecedented surge, growing more than five-fold since the beginning of last year. This surge led the semiconductor company to surpass Amazon and Alphabet, reaching a market value of $2 trillion. The insatiable demand for Nvidia's graphics chips from AI companies drove a remarkable 265% year-on-year increase in revenue to over $22 billion last quarter, along with a nearly 1,000% rise in operating income to approximately $14 billion.
Uncertainty Amidst Tech Valuations
Siegel expressed uncertainty regarding whether the current frenzy resembles the internet revolution's halcyon days or the peak euphoria that preceded the dot-com crash. Despite the impressive tech valuations, underpinned by strong earnings growth, Siegel emphasized that Nvidia remains a "special company" with balanced valuation. While he believes that Nvidia could continue to rise, he cautioned that the tech-stock rally might face a significant correction in the future.
Outlook on the US Economy
Addressing concerns about the US economy, Siegel remains optimistic. He pointed out historically low unemployment rates, consistent job gains, and manageable inflation levels as positive indicators for companies and investors. Despite worries about potential interest rate hikes by the Federal Reserve, Siegel remains confident in the economy's health and earnings outlook. He highlighted the lack of significant inflation signals in sensitive commodities as a reassuring factor.
Anticipation and Caution
As the author of "Stocks for the Long Run," Siegel is known for his optimistic outlook on the stock market. However, even he acknowledges the risk of a tech bubble amidst the current market conditions. His past predictions of stock market rallies and economic trends lend weight to his cautious observation of a potential tech bubble.
For more details, you can read the original article on Business Insider.
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By: tmohamed@insider.com (Theron Mohamed)
Title: The Rise of a Speculative Bubble in Tech Stocks: Insights from Jeremy Siegel
Sourced From: markets.businessinsider.com/news/stocks/siegel-wharton-stock-market-outlook-tech-ai-bubble-nvidia-crash-2024-2
Published Date: Tue, 27 Feb 2024 15:11:37 +0000
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