Big Techs AI Bubble Will Be Bigger then Dot-Com Wipe out!

BofA says AI is in a ‘baby bubble’ that echoes the dot-com era, and one move could easily blow up

• What could burst the bubble is the Fed pausing rate hikes and then restarting the cycle.
• BofA said the dot-com blow-up in the early 2000s had roots in the Fed restarting policy tightening in 1999.
  
  Artificial intelligence is this year’s investment craze and experts say the profit potential is huge, but this period could be transformed by a messy pop à la the dot-com bust if the Federal Reserve makes one particular mistake, says Bank of America. Excitement over AI prospects is palpable in the markets, ignited by the popularity of ChatGPT, OpenAI’s open-language chatbot. Among high-flyers, shares of Meta Platforms and microchip maker Nvidia have more than doubled this year. AI tools bolstering advertising at Facebook’s parent company are catching attention. Billionaire investors are making big AI bets, including Bill Ackman’s push of $1 billion into Google parent Alphabet.

  Bubbles, whether they’re in the “right things” such as the internet or the “wrong things” like housing, are always started by easy money and are ended by rate hikes, Hartnett said. 

The Fed is NOT on the way to pausing its run of rate hikes at its June 14 gathering. This month, it bumped up its benchmark rate for the 10th consecutive time to beat down inflationary pressures.   But a pause would be a policy error, and the Fed attempting to fix it by restarting rate hikes could burst the AI bubble, Hartnett said, recalling similar conditions in the dot-com era.  The Fed mistakenly pausing in 2023 would be communicated to investors by US bond yields rising above 4%. “[And] if so we most certainly ain’t seen the last Fed rate hike of the cycle,” Hartnett said in BofA’s Flow Show note.

BofA’s investment strategy team recalled the frenzy surrounding internet stocks in 1999 that drove the Nasdaq Composite up to new highs at 5,000. The speculative surge in internet stocks alongside a bubbling US economy forced the Fed under Alan Greenspan to restart monetary tightening, it said. The dot-com bubble popped nine months later. NN: Here  we go again. Desperate times brings desperate events. To be clear here this AI feeding frenzy is a great gift of GOD for us. We need a really big pay day. You might remember how wee we did in the last tech wreck. This time we have some great tools. With the incredible leverage of CFD’S and the fact this is a FANG rally. One of the narrowest I have ever seen. I am doing a deep dive this Memorial day weekend and will have trades for every level trader. Holy shit how lucky we are.