Artificial intelligence (AI) has disrupted the behavior of markets. ChatGPT, an AI-powered language model, has been adopted at a speed unprecedented in the history of technology, catalyzing renewed investor interest in its transformative power. One reflection is the trajectory of Nvidia’s capitalization. This company, known for its production of graphic processing units (GPUs), has risen 190% on the stock market in 2023.
This event can be interpreted from behavioral psychology. A phenomenon known as FOMO (fear of missing out, or fear of being left behind). This sentiment manifests itself when investors fear missing out on opportunities that are perceived to be highly profitable. The buyer flow and, consequently, its impact on the price is so high that excessive valuations can be reached that may not be sustainable in the long term (a PER ratio above 50 times requires a profit increase of 150%, and a PER 100, of 400%). The fact that the world’s seven largest companies (Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta) account for 50% of the first half 2023 performance of the MSCI ACWI Index illustrates this phenomenon. This concentration is further accentuated in the S&P 500: this top 7 represents 75% of the return of the index. Consequently, the technology sector is the one that has experienced the greatest appreciation in 2023: during the first semester it has appreciated almost twice as much as the world stock market.
The focus on these big tech it is due to his exceptional orientation towards AI. Among the most prominent examples is Nvidia, which has positioned itself as an essential provider of the hardware required for AI. Tesla, for its part, is at the forefront with the development of its own technology for autonomous driving. Meanwhile, Apple has managed to effectively integrate AI into its virtual assistants and Microsoft continues its implementation process in its office tools. The US leads the way in AI development, home to many of the top companies and start-ups, and having a large number of resources dedicated to research and development. But China, India, Israel, the EU and Canada are also making significant investments in AI and could present attractive opportunities. We are probably facing the biggest technological disruption since the creation of the search engine. This, of course, must be reflected in the price of the markets. However, as there are still so many unknowns, it is very likely that many inefficiencies are currently being created in the Stock Markets, which the most savvy active managers will be able to take advantage of.
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