Investors in artificial intelligence (AI) stocks are being cautioned by renowned fund manager Mark Mobius, who predicts a significant correction for leading AI companies as their valuations continue to soar. In a recent interview with Bloomberg Television, Mobius expressed concern that a pullback could see top AI stocks plummet by as much as 40%. He noted that while he is optimistic about the long-term prospects for AI, he anticipates a short-lived downturn in the market.
This warning comes amid rising anxiety about a potential stock market correction, particularly in the technology sector. Significant figures in finance, such as Goldman Sachs CEO David Solomon, have suggested that the market could drop by 20% in the next couple of years, while Morgan Stanley’s CEO, Ted Pick, mentioned a possible 15% decline. Both executives have pointed out that such pullbacks are healthy for long-term market stability.
Mobius is especially troubled by what he sees as excessively high valuations and aggressive spending among AI firms. He referred to the investments being made as “probably excessive,” highlighting the significant capital expenditures allocated by major tech companies this year. The legendary investor stressed the need for caution, noting the uncertainty surrounding the monetization strategies of many AI firms.
Mobius advised that investors should prepare for a potential pullback, encouraging them to take advantage of lower prices when they occur. “I’d love to see a pullback of 30%, 40%. I would be in there with both arms and legs. We’d be buying a lot,” he stated, advocating a proactive investment approach.
In addition to cautioning against AI stocks, Mobius identified a more promising investment area: emerging market stocks. He pointed out that emerging markets have outperformed the U.S. market thus far this year, with the iShares MSCI Emerging Markets ETF rising by 29.7% year-to-date, compared to the S&P 500’s 13.8% gain. The positive performance is largely attributed to robust growth in Chinese and Indian equities, with China’s economy advancing in technology and India’s developments in the computer hardware sector.
Mobius suggested that these factors, combined with supportive conditions such as potential interest rate cuts by the Federal Reserve, are likely to enhance the appeal of emerging markets. A weaker U.S. dollar could increase purchasing power for foreign firms, further bolstering emerging market investments. He concluded by expressing optimism about the overall potential of emerging markets, foreseeing favorable trends that could benefit investors looking beyond traditional U.S. equities.
