Will the artificial intelligence revolution be the new “dotcom” bubble?

2023-06-20 13:34:04

Generative artificial intelligence technology revived the shares of technology companies during the year 2023, as the green color returned to dominate the indices of those shares, following recording sharp declines in 2022.

The gains in technology stocks come amid a state of enthusiasm among investors, who have recently intensified their investments in these stocks, for one reason only, which is “generative artificial intelligence”.

Since the “Open AI” company launched the “Chat GBT” program supported by generative artificial intelligence, and the rush of large companies such as Microsoft and Alphabet to pump huge investments in this promising technology, investor flows have shifted towards technology stocks.

In terms of numbers, the generative AI industry is expected to grow from a $40 billion market in 2022 to a $1.3 trillion market in 2032, according to Bloomberg Intelligence.

trend on technology funds

In line with the expected boom in the “generative artificial intelligence” market, investors were turning their money towards technology stocks, and according to the research company PitchBook, they invested more than $ 11 billion in emerging companies in the field of artificial intelligence in the month of May 2023, an increase of 86 percent compared to In May 2022, while the first week of June 2023 witnessed an influx of $8.5 billion into funds specialized in investing in technology stocks, which is a record in this field.

The rush of investors to technology stocks is considered responsible for the addition of companies such as NVIDIA, Microsoft, Alphabet, Apple, Amazon and Meta, regarding $ 3.1 trillion to their market value since the beginning of the year 2023 until now, as the dominance of technology stocks has become clear on Wall Street, and this is what was shown by the “Nasdaq” index, which It is dominated by technology companies, which is up 27 percent since the start of 2023.

The transformation of technology stocks into a rising market, as a result of investors intensifying their investments in this field, brought to mind the “dot-com bubble” scenario, amid growing concern among some observers that what is currently happening will not go unnoticed, calling on investors to Be careful of the looming bubble.

What is a bubble in stock markets?

A bubble occurs when the prices of assets, including stocks, rise over a period of time significantly beyond their real value, and at the end of that bubble, the prices of those assets decline, by a very large percentage and also very quickly.

The term “dot-com bubble” refers to the period that witnessed a significant rise in the value of shares of companies active in the field of the Internet in the United States of America, and this led to an explosive growth in the value of the Nasdaq index.

When did the dot-com bubble arise?

The dot-com bubble, also known as the Internet bubble, arose between 1995 and 2000, when the value of the Nasdaq index dominated by technology companies grew tremendously, from less than 1,000 points in 1995 to more than 5,000 points in 2000, and the bubble burst between 2000 and 2000. 2001 and 2002, bringing the index value to 1139 on October 4, 2002.

Over the course of 5 years, investors pumped their money into emerging Internet companies, hoping that they would become profitable one day, but with the passage of time, many of them liquidated their shares in those companies for fear of not being able to benefit from the increasing use of the Internet, and with the start of capital depletion. As a venture capitalist, dotcom companies became worthless in a matter of months.

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Three items are not available

A member of the Executive Committee of the World Economic Forum, Dr. Alfred Riachy, said in an interview with “Economy Sky News Arabia” that comparing what is happening now with regard to stocks of technology companies to what happened previously is unrealistic. When we look at the “dot-com bubble” we find that What happened was a combination of the presence of speculative investment, the abundance of venture capital financing for startup companies, in addition to the failure of Internet companies to reap profits, due to the lack of actual economic value for the technical breakthroughs that were achieved at the time, indicating that these elements All three are not available now in the market.

There is no cheap financing

Riachy explains that there is currently no such thing as “cheap financing”, which leads to the emergence of economic bubbles, so global central banks tightened their monetary policies in their battle once morest inflation, by raising interest rates, canceled the “cheap financing” element, which usually contributes to the emergence of Bubbles by securing an abundance of venture capital financing, fueling speculative investment.

He also pointed out that the technology of generative artificial intelligence has an actual economic value, and will contribute to a radical change in the way in which several industrial and economic sectors operate, as the coming years will prove that it is not like the “dot-com bubble”.

According to Riachi, the large bubbles that occurred in the past caused catastrophic repercussions on the markets and the entire financial system, but at the present time, generative artificial intelligence enjoys a great deal of funding and investment, but it does not dominate all the money available in the market, so if we assume that this technology , which proved to be useless on the industrial and investment levels, the decline that will occur in the market at present will be limited, and will not rise to the level of a bubble.

According to Riachi, technology stocks have a real opportunity for growth, but concern regarding another technological bubble is a very distant issue, stressing at the same time that this does not mean that any company working in artificial intelligence will become a winner, but rather that there will be successful companies in this field that can be invest in it.

Abnormal outburst

For his part, Muhammad Ali Yassin, an expert on financial markets and investment, said, in an interview with “Sky News Arabia Economy”, that the surge that we see today in the field of investment flows to so-called artificial intelligence companies has a lot of exaggeration, indicating that there are fears that we will be in The stage of forming a bubble in this field, as a result of the process of being overly optimistic regarding the evaluations of these companies, and the changes that will be brought regarding by employing generative artificial intelligence techniques within the system of these companies.

Yassin believes that what is happening now with regard to technology stocks is an abnormal outburst and an abnormal evaluation, pointing out that a number of observers are comparing today’s events to the dot-com bubble, and therefore the “remembering” of some of what happened previously makes us believe that it is not supposed to We reach the same stage as before.

According to Yassin, there is an exaggeration in the reactions to everything related to generative artificial intelligence, amid a media clamor that reinforces this trend, indicating that some companies are deliberately mentioning the word artificial intelligence, when announcing their profits to raise the value of their shares, as this matter has turned into a policy. Successful marketing, at a time when no one really knows whether these companies are actually adopting artificial intelligence tools in their business or related industry, as much of what we hear in this field may be just noise to increase investor enthusiasm.

Yassin stressed that the technology of generative artificial intelligence is really like a revolution, and it will have a major role, indicating that the problem is in the role of financial markets, and some analysis houses that analyze the effects of this technology on the performance of companies and that issue very optimistic reports regarding what it can represent. This technology, in addition to talking regarding growth rates, and expectations of imaginary profits that may not be realized, calling for caution in the investment process in this field due to the presence of great risks.

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