AI Bubble Alarm Sounds! Investors Restart "Survival Strategy" from the Internet Bubble Era.

Due to concerns about the bursting of the artificial intelligence (AI) bubble but at the same time holding a cautious attitude towards shorting the sector, some investors have revived the classic strategy from the 1990s Internet bubble era pulling out of overhyped popular AI stocks and turning to potential "next wave winners." This strategy helped some investors successfully avoid the market crash decades ago. At a time when the US stock market repeatedly hits new highs, NVIDIA Corporation (NVDA.US), the AI chip manufacturer that has benefited the most from this AI boom, has surpassed a market value of $4 trillion. Meanwhile, professional investors are looking for ways to participate in the bull market while avoiding excessive risks. Some investors are looking back at the Internet boom of the 1990s when the bubble spread from startups to the telecommunications and technology industries, hedge funds would exit hot stocks with inflated valuations before moving on to companies with still upward potential to profit. Francesco Sandrini, Head of Multi-Asset Department and Chief Investment Officer of Amundi, the largest asset management company in Europe, said: "What we are doing now is the same as what was effective between 1998 and 2000." He pointed out signs of irrational exuberance on Wall Street, such as unusually active option trading surrounding the high-risk period of popular AI stocks. However, he also mentioned that he expects this new technology enthusiasm to continue and hopes to profit by betting on assets that are "reasonably valued and could become the next wave of winners." Sandrini stated that the core of this strategy is to "look for the highest growth opportunities that have not yet been discovered by the market," including software companies, Siasun Robot & Automation industries, and the Asian technology sector. Other investors are also planning to gradually exit from the "Magnificent Seven" of US stocks, but they still aim to maintain a diversified presence in the AI field. Flexible operations Simon Edelsten, who was responsible for the telecom industry IPO at London's Dresdner Kleinwort Benson in 1999 and now serves as Chief Investment Officer of Goshawk Asset Management, said: "The possibility of this AI boom eventually busting is very high because there are now too many companies spending trillions of dollars to compete for a market that does not yet exist." He expects the next phase of the AI boom to spread from NVIDIA Corporation and Microsoft Corporation, Alphabet, and other companies to related industries. Historically, profit was earned by correctly grasping each phase of a bubble without taking the risk of "topping out" too early. A study by economists Markus Brunnermeir and Stefan Nagel showed that most hedge funds did not directly short relevant stocks during the Internet bubble period. Instead, they flexibly operated, averaging outperforming the market by about 4.5% each quarter between 1998 and 2000, successfully avoiding the most severe declines. They sold overvalued Internet stocks in a timely manner, profited, and reinvested in other companies that were still not well-known to mainstream investors. Simon Edelsten said: "Even during the peak of the bubble in 2000, agile people could still make significant profits." He added that the current market environment is quite similar to that of 1999. Simon Edelsten pointed out that he is optimistic about IT consulting companies and the Japanese Siasun Robot & Automation company these companies are likely to obtain new revenues from the AI giants, following the typical path of a "gold rush." "While someone is digging for gold, (you should) go buy a hardware store that sells shovels." Staying in the AI field but avoiding excessive risks Investors are also trying to benefit from the billions of dollars invested by so-called "hyperscalers" such as Amazon.com, Inc., Microsoft Corporation, Alphabet in AI data centers and advanced chips, but are trying to avoid directly increasing their exposure to these companies' risks. Becky Qin, a fund manager at Fidelity International, pointed out that uranium is a promising new theme for AI investments because power-hungry AI data centers may heavily rely on nuclear energy. Kevin Thozet, a member of the investment committee at asset management company Carmignac, is gradually realizing profits from the "Magnificent Seven" US stocks, while increasing holdings in Gudeng Precision from Taiwan, which provides wafer carriers for AI chip manufacturers including Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR. Asset managers are also concerned that the AI data center construction boom may lead to oversupply similar to the fiber optic cable expansion bubble in the telecommunications industry. Arun Sai, a senior multi-asset strategist at Pictet Asset Management, said, "In any new technological paradigm, we are bound to go through a phase of excess." Although the current performance of major AI companies such as Microsoft Corporation, Amazon.com, Inc., Alphabet remains strong, he still believes that there is a "nascent bubble" in the market and prefers Chinese stocks as a hedge. However, some investors do not agree with this "relative value" strategy to mitigate potential AI risks. Oliver Blackbourn, a portfolio manager at Janus Henderson, said he hedges his positions in US tech stocks by holding European and healthcare assets to guard against an AI stock market crash dragging down the US economy. He pointed out that no one can accurately predict how long the AI frenzy will last because "the peak of the bubble can usually only be discerned in hindsight," "before the bubble bursts, we are all still in 1999."