But the bears on Wall Street warn that the enthusiasm for artificial intelligence mirrors the internet bubble of the late 90s — and the recent run-up in stock prices is a bad omen for investors.
Stocks are in the midst of the "bubble of all bubbles," and equities could lose more than half of their value as inflated asset prices finally burst, according to the economist Harry Dent.
When the bubble finally pops, the S&P 500 could drop as much as 86%, while the Nasdaq Composite could drop by around 92%, Dent predicted in a recent interview with Fox Business Network.
That bubble, which has formed over years of loose monetary and fiscal policy, is already showing signs of "topping," Dent added. Stocks are "barely" making new highs, and equities have likely been inflated for the past 14 years, he estimated — far longer than most historical bubbles, which typically last for five to six years.
"It's been stretched higher for longer, so you have to expect a bigger crash than we got in 2008 and 2009," he warned.
Dent has been making the case for a major market crash for years. In 2009, he wrote a book predicting a stock market crash and ensuing economic depression, which he said could last for 10 years or more.
The research firm is predicting the S&P 500 could see a steep correction following a rally to 6,500. That's because there's only so much more the market can gain before prices pull back, according to John Higgins, the firm's chief market economist.
Hussman has been warning of a steep correction in stocks all year, and said in a recent note to clients that a handful of red flags are signaling pain ahead.
"I continue to view the market advance of recent months as an attempt to 'grasp the suds of yesterday's bubble' rather than a new, durable bull market advance," Hussman said in a recent note. "I also believe that the S&P 500 could lose something on the order of 50-70% over the completion of this cycle, simply to bring long-term expected returns to run-of-the-mill norms that investors associate with stocks."
"Put simply, my impression is that the period since early 2022 comprises the extended peak of one of the three great speculative bubbles in US history," he later added.
In a recent note, Bernstein noted that only a narrow group of stocks are propping up the market and that today's mega-cap leaders are going to give back most of their gains and see dismal returns going forward.
At its worst, he predicted the most highly valued stocks could drop 50%, generating losses that rival the dot-com crash.
"That's what I think we're looking at," Bernstein warned. "It's multiple years of significant underperformance."
Typically, there are eight warning signs of a market bubble forming, and six of them have already flashed, the bank said. Strategists pointed to signs like growing corporate profits pressure, falling market breadth, and aggressive stock buying among retail investors.
The good news is that the bubble may not immediately burst. Stocks are looking most similar to the bubble that occurred in 1997, rather than 1999, the analysts said.
"We only invest for the bubble thesis if we are in 1997 not 1999 (which we think we are)," strategists said in a recent note.
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