AI Stocks 'Mania Appears To Be Headed To A Bad Ending,' Says Investing Veteran: 'Fear Stock Market Failure'

Bill Smead, a veteran of the stock market, has issued a stark warning to investors, cautioning them against the allure of popular stocks and the artificial intelligence (AI) boom.

What Happened: Smead, the founder of Smead Capital Management, has been vocal about the potential risks associated with the current market climate, reported Business Insider. He believes that investors are underestimating the dangers of the AI frenzy and the over-reliance on the Magnificent Seven stocks, which have been propelling the S&P 500 to record highs.

He cautioned that the market’s current state is reminiscent of previous bubbles, and history suggests a major correction could be on the horizon. Smead highlighted the Nifty Fifty stocks of the 60s and 70s, which plummeted during the 1973 market crash, and the fate of Cisco and Intel, two prominent stocks during the dot-com bubble that lost over half their value.

Notably, Smead’s concerns echo those of other market experts who have drawn parallels between the current AI craze and the dot-com bubble. Despite the differences in market valuations, Smead believes a significant market fallout could still be imminent.

“We have no urge to go through purgatory with popular stocks that lead to long-term heartache. This mania appears to be headed to a bad ending. As always, fear stock market failure,” Smead said.

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Why It Matters: Smead’s warning adds to the growing chorus of voices expressing concern over the current market situation. Renowned finance professor Jeremy Siegel recently raised a red flag over the soaring valuations of technology stocks, particularly NVIDIA Corp NVDA, suggesting that a speculative bubble might be forming.

On the other hand, some experts like John Higgins, the chief markets economist at Capital Economics, have forecasted that the current stock market bubble will continue to inflate until the end of 2025, driven by the narrative around artificial intelligence.

Smead’s warning echoes concerns raised by other market commentators, including J.P. Morgan strategists’ who have drawn comparisons between the current market and the dot-com bubble era. The analysts noted that despite the “irrational exuberance” of the dot-com bubble, there are many similarities between the two periods.

However, Smead’s warning suggests that despite the potential economic benefits of AI, investors should remain cautious about the sustainability of the current market boom.

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