Artificial intelligence has become one of the hottest themes on Wall Street. Yet as AI stocks continue to soar, some investment experts are asking an uncomfortable question: are valuations getting out of hand?
That topic came up during the Wealth Management EDGE conference in Florida, where several investment professionals warned that parts of the AI market are beginning to show signs often seen during previous bubbles.
Bubble warning signs
Cameron Dawson, chief investment officer at NewEdge Wealth, pushed back on the idea that strong earnings automatically rule out a bubble. According to her, many companies involved in past market booms also reported growing revenue and profits. Rapid growth and speculation often go hand in hand when a major new technology emerges.
Dawson pointed to AI companies with massive valuations despite limited profits. Some trade at 80 to 90 times annual sales, which she said is often a sign of speculation. Recent market swings have only added to those concerns.
SoftBank’s recent $50 billion decline in market value during an AI stock selloff showed how quickly investor sentiment can change. While Dawson stopped short of calling today’s market another dot-com bubble, she acknowledged there are similarities.
Managing the risks
Not everyone thinks it is easy to judge the situation. Alex Morris, co-founder and CEO of F/m Investments, said too few smaller AI companies are trading publicly. Why does that matter? More listed companies would help investors better understand what the sector is really worth and make valuations easier to compare.
Don Calcagni, Mercer Advisors CIO, agreed that AI valuations look stretched. Even so, he noted that bubbles are usually only obvious after they burst. Rather than trying to predict when a correction might happen, he believes investors should avoid putting too much money into a single AI stock or theme.
The panel’s advice was straightforward: focus on managing risk. Many investors already have AI exposure through major technology companies. With valuations high and market uncertainty still lingering, experts said diversification remains one of the safest strategies.
