Investors Whisper New Opportunities in the AI Buzz

London - As major investors grapple with the uncertainty created by the excitement surrounding artificial intelligence (AI), they are turning their attention to new potential profit opportunities. This approach is resurfacing as a strategy rooted in the dot-com era of the 1990s.

As U.S. stocks reach record highs one after another, the value of AI chip maker Nvidia has surpassed $4 trillion. Professional investors are looking for ways to benefit from the bull market while avoiding excessive risk.

Some investors are harkening back to the 1990s, when the internet boom occurred, planning to exit high-value stocks before share prices peak and accumulate other stocks that could rise. Francesco Sandrini, Chairman of Multi-Asset at Amundi and Investment Manager in Italy, noted that they are observing irrational excitement on Wall Street. However, he expects the curiosity surrounding new technologies to continue and hopes to generate profits by investing in reasonably priced assets.

Sandrini stated, "We are trying to find the highest growth opportunities that the market has not yet realized." He emphasized the importance of shifting towards software groups, robotic technology, and Asia-based tech companies.

Other investors also plan to exit the "Magnificent Seven" stocks on Wall Street, especially after Nvidia’s shares have tripled in the last two years. Yet, they still aim to maintain their diversity in the AI sector.

Simon Edelsten, Investment Manager at Goshawk Asset Management, said, “The hype around AI has a very high probability of being a bubble because companies are spending trillions of dollars and fighting for a market that doesn't yet exist.” He expects the AI excitement to spread from names like Nvidia and Microsoft, Alphabet to other sectors.

Historically, the timing of phases during bubble periods has been a way to avoid the risk of predicting peaks too early. A study by economists Markus Brunnermeir and Stefan Nagel shows that hedge funds mostly did not take positions against the dot-com bubble, but managed to outperform the market by approximately 4.5% between 1998 and 2000 by managing it adeptly.

Investors are also considering how to benefit from tech giants like Amazon, Microsoft, and Alphabet, which are investing trillions of dollars in AI data centers and advanced chips, without taking on excessive risk during a crisis. Becky Qin, multi-asset manager at Fidelity International, prefers uranium as a new AI investment since energy-intensive AI data centers are turning towards nuclear energy.

Kevin Thozet, a member of the investment committee at Carmignac, plans to increase positions in Taiwanese Gudeng Precision, a company that produces delivery boxes for AI chip makers like TSMC, taking profits from the Magnificent Seven stocks.

Investment managers are concerned that the effort to build data centers could create excess capacity, similar to the fiber optic cable boom in the telecom industry. Arun Sai, Senior Multi-Asset Strategist at Pictet Asset Management, stated, “Every new technological paradigm cannot go from A to B without excess.”

Among the structures with high profits are the top AI stocks like Microsoft, Amazon, and Alphabet; however, Sai still noted that he sees "the building blocks of a bubble" and added that if rapid development occurs, the enthusiasm for AI on Wall Street could be affected. Some investors, however, do not prefer such a risk-reduction approach.

Oliver Blackbourn, a portfolio manager at Janus Henderson, expressed that due to concerns that an AI stock market crash could also impact the U.S. economy, he has hedged his U.S. tech positions with European and healthcare assets. He stated that it is impossible to predict how long the AI excitement will last and added, “Determining the peak is often only possible in hindsight. We are still in 1999.”