Nearly three years after the launch of ChatGPT set off an AI-driven stock market surge, Nvidia has made headlines as the first company to achieve a staggering $5 trillion market valuation, a figure that astonishingly equals Germany’s GDP.
Investors are increasingly drawing parallels between the current stock market environment and the notorious dot-com bubble of the early 2000s. This raises a critical question: Are we witnessing a speculative mania, or is this merely the beginning of a prosperous AI growth story?
To gain further insight into the situation, ChatGPT, the AI language model responsible for significant market enthusiasm, was consulted first-hand.
The chatbot highlighted potential indicators of a market bubble, specifically noting the excessively high valuations of AI firms, which might outpace realistic earnings growth projections. This concern arises during a time when mega-cap technology stocks exert unprecedented dominance over the S&P 500.
Passive investors should be particularly cautious, as many U.S.-focused index funds now carry substantial exposure to AI stocks, arguably offering less diversification than they have in decades.
ChatGPT proposed two potential scenarios. In one, AI stocks could decline by as much as 50%, with resilience in other sectors, such as energy and healthcare, potentially limiting broader market declines to around 15%. In a more drastic collapse, the market might plunge over 30%. While it did stress that a market crash isn’t a foregone conclusion, the AI model ominously stated, “The AI bubble is likely to trigger the next stock market crash.”
This raises the question of how seriously one should take these warnings, given ChatGPT’s nature as a tool rather than an insightful analyst. The model generates information based solely on user interactions rather than genuine expertise or conviction.
When questioned about the sustainability of the AI stock rally—reversing the premise of its earlier assertion—ChatGPT surprisingly affirmed the rally’s sustainability, albeit while including typical disclaimers. This contradiction indicates that the model repackages existing data without providing a rigorous analysis or coherent investment philosophy, such as that of renowned investor Warren Buffett.
While the focus remains heavily on AI, investors concerned about a potential bubble may explore alternatives beyond this sector. One noteworthy stock is Danish pharmaceutical giant Novo Nordisk, which specializes in developing treatments for diabetes and obesity.
Currently, weight-loss medications are experiencing a notable surge in popularity. Novo Nordisk, known for its semaglutide injections—Ozempic and Wegovy—has experienced increased competition from Eli Lilly’s Mounjaro, losing its dominant market position due to supply chain challenges and constrained manufacturing capacity. This has forced the company into a competitive battle for market share, compounded by the risks of potential new drug tariffs posed by prior administrations. In stark contrast to the soaring AI shares, Novo Nordisk’s stock has experienced a significant decline of 55% over the past year.
However, the stock now trades at an attractive price-to-earnings (P/E) ratio of below 13. Positive trial outcomes for an oral semaglutide formulation could provide a significant boost to the company, as no competitor has secured regulatory approval for a pill version yet. Given that many patients prefer oral medications over injections, the success of such a product could be transformative for the firm.
Should Novo Nordisk manage to reclaim its competitive advantage, the rebound potential for its shares could be substantial. In a stock market increasingly dominated by lofty valuations in the AI sector, this value investment warrants a closer examination.
