Veteran economist and strategist Ed Yardeni advised investors to view the recent pullback in artificial intelligence (AI) stocks as a buying opportunity, arguing that widespread market nervousness is a healthy sign that differentiates this boom from the dot-com bubble.
Yardeni Says ‘Buy The Dip’ In AI
The president of Yardeni Research told CNBC on Monday that the current market’s caution is a stark contrast to the sentiment of the late 1990s.
“In the late 1990s… nobody saw the tech wreck really coming. Nobody was really worried about a bubble… not the way it is today, where everybody seems to be worrying about it,” Yardeni said. “I know there’s a lot of nervousness about AI, but that’s a good thing.”
Yardeni noted that a recent dip “cleaned out some of the bulls” after the bull-bear ratio exceeded four-to-one, signaling “too many bulls.” He now sees a “buy in the dip market particularly in AI.”
He believes AI is “all right,” calling it an “app that has widespread applications.” Yardeni also identified where he sees the primary financial benefit, stating, “The payoff is actually in the cloud. The cloud providers are making a fortune as a result of AI.”
Strong Corporate Earnings Provide A ‘Floor’ For Rally
Yardeni's bullish case extends beyond AI, resting on what he calls “phenomenal” corporate earnings that provide a “floor” for the market despite geopolitical “commotion.”
He highlighted that during the current earnings season, S&P 500 profits are tracking at 14% year-over-year growth, dramatically beating the 6.5% analyst expectation.
“We’re going to have record highs in S&P 500 once again for the third quarter in a row,” Yardeni said. “In a sense, we’ve had an earnings-led melt-up, which is of course the kind of melt-up that you really want.”
Yardeni Sees S&P 500 At 7,000 With Santa Claus Rally
While acknowledging the S&P 500’s forward P/E multiple is elevated at 22-23, he noted this is heavily skewed by the “Magnificent 7.”
The remaining “S&P 493” trades at a 19-20 multiple, which Yardeni characterized as “not cheap, but not crazy.”
He concluded that “we’re in a bull market” and is maintaining his S&P 500 target of 7,000, anticipating a “good solid Santa Claus rally” through the end of the year.
While the S&P 500 index ended 0.21% higher at 6,846.61 points on Tuesday, its last 52-week high stood at 6,920.34. With this, several experts have been forecasting the index to breach the 7,000 mark in 2025.
The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, ended mixed on Tuesday. The SPY was up 0.23% at $683.00, while the QQQ declined 0.27% to $621.57, according to Benzinga Pro data.
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