AI Stocks: Bubble Or Opportunity?
Over the past 18 months, AI-related stocks have dominated headlines and portfolios. From Nvidia’s meteoric rise to the surge in demand for anything with the letters “AI,” investors are asking the same question: Is this another bubble like 1999, or are we still in the early innings of a long-term secular trend?
At Belvedere Investments, we think the answer isn’t binary.
What is driving AI hype?
The catalysts are real:
Breakthroughs in generative AI (e.g., ChatGPT, Gemini, Grok)
Massive infrastructure buildouts in data centers and semiconductors
Corporate adoption across industries from healthcare to logistics
The excitement is justified to an extent. Many companies in this space are generating real earnings, real cash flow, and real economic value. This is a key difference from many of the “dot-com darlings” of 1999.
So why the concern?
Even good businesses can become bad investments if you overpay. Today, some AI-related stocks are trading at extreme valuations. For example:
Nvidia (NVDA) recently traded at a forward P/E above 45 high for a mature company.
Smaller-cap AI plays with no earnings are seeing parabolic moves fueled by retail speculation.
Market momentum can distort price relative to intrinsic value, and when that happens, even good news may not support further gains.
Our View: Be Selective, Not Speculative
We’re not dismissing AI. In fact, we believe AI will shape the future of productivity, automation, and innovation and companies that lead in this area deserve a place in long-term portfolios.
But our approach is disciplined:
We evaluate fundamentals first like earnings, cash flow, pricing power
We diversify exposure, not all AI opportunities lie in obvious places
We manage downside risk, through tactical allocation and, where appropriate, hedging strategies
AI is likely not a passing fad but chasing returns without a valuation framework is rarely wise. We believe the better question isn’t, “Is AI a bubble?” but rather, “Which AI investments offer durable value in a broader, well-structured portfolio?”
