Investor Warns AI Stocks Resemble Dot-Com Bubble

Richard Bernstein, Chief Investment Officer of Richard Bernstein Advisors, warns that the current enthusiasm for artificial intelligence (AI) stocks closely resembles past market bubbles such as the dot-com bubble of the early 2000s and the 1960s electronics craze. Since the launch of ChatGPT in late 2022, major indexes like the S&P 500 and Nasdaq 100 have surged significantly, with valuations nearing historic peaks comparable to the dot-com era and even the 1929 market peak. Bernstein cautions that while he is not predicting an immediate market top, investment returns often reverse after major rallies, and the best opportunities are found in assets that are currently out of favor. He explains that in later stages of bull markets, investors shift from seeking dividends and lower-beta stocks to riskier momentum and growth strategies, suggesting that the current market is in this later cycle phase with a decelerating profits cycle. Given this environment, Bernstein recommends considering more stable, dividend-paying stocks, particularly in the utilities sector, which can offer reliable income and benefit from compounding returns over time. Overall, he advises investors to exercise caution with AI stocks and consider diversifying into more conservative, dividend-focused investments.