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The stock market has become incredibly volatile over the past few weeks as investors worry about the possibility of an AI bubble. Given that ChatGPT’s ‘brain’ is built on gazillions of AI chips, it seemed fitting to ask it for a bit of clarity. Have I found it?
Correction or crash?
First, I asked the bot if we’re actually in an AI bubble that might cause a stock market crash. Yes, it told me confidently, there are “clear AI bubble signs“. These include “start-ups with no revenue getting $10bn valuations” and most companies now claiming to be AI-powered, including “sandwich shops“.
It also pointed to AI chip king Nvidia being worth more than entire countries, suggesting the stock is overvalued. But then it goes on to say that AI isn’t just hype, because some companies are reporting surging revenue and profits.
For example, it said Nvidia is “printing cash at record levels“. And that makes 2025 different to 1999 (when most hot internet stocks had little to no earnings).
As for a crash, the AI assistant reckons a market correction is far more likely. If true, that would be more of a gradual 10%-20% pullback in major indexes than a rapid 20%+ nosedive.
My take
ChatGPT is great at cranking out colourful turns of phrase, like “the market has gone vertical, but trees don’t grow to the moon“. But it doesn’t offer investors insights here or even much clarity, one way or the other.
My own view is that parts of the market are in a bubble. For example, quantum computing stocks look incredibly overvalued, while an OpenAI IPO at a $1trn valuation would be another red flag for me.
Remember, ChatGPT was only released three years ago. It took Apple 42 years to reach $1trn!
AI-related energy stocks also look overheated, with much higher multiples than normal. So I’m avoiding these three areas now: quantum computing, IPOs from large language model makers, and nuclear/energy stocks.
AI investments
Rather than fret about a possible AI bubble, I’ll continue taking each stock individually.
For example, Rightmove (LSE:RMV) recently said it will be investing more in AI than investors expected. As such, operating profit growth will only be 3%-5% in 2026, rather than the 9% expected this year.
This caused the FTSE 100 stock to drop sharply, putting the fall since August at 34%. Any further deterioration in profits due to AI investments could tigger another sell-off.
Basically then, Rightmove is investing in cutting-edge AI, but the market isn’t convinced about the long-term payoff. However, Rightmove is surely justified in making these technology investments. I would be more worried if it wasn’t.
One new tool it’s rolling out is AI keywords, which will help “movers more easily find a home which fits their exact requirements by inputting their bespoke requirements such as sea or river views, exposed brick, balcony, or underfloor heating“.
The stock’s sell-off looks overdone to me, with the forward price-to-earnings ratio now at around 17.5. That appears too low for a market-leading company boasting an incredible 67% operating profit margin.
My view is AI is likely to further cement Rightmove’s data-driven dominance by creating new valuable tools for customers. Therefore, I think the stock’s 34% dip is a buying opportunity worth assessing more closely.
This story originally appeared on Motley Fool
