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B. G., Opalesque Geneva: The outperformance and stratospheric valuations of a few Big Tech stocks have many investors worried about an investment bubble. But they needn't be.
Peter van der Welle, strategist in sustainable multi-asset solutions, and Laurens Swinkels, head of quant strategy at Robeco, an international asset manager, argue in a recent five-year outlook series article that some financial market bubbles can be entirely rational, especially when investors rightly anticipate the extraordinary growth of a paradigm-shifting technology in the real economy. They call these 'buzzing bubbles' because their strong price increases and high valuations are largely justified.
Classic bubbles see a spectacular rise in valuations and asset prices only to 'burst' as fundamentals catch up to the speculative hype and prices plummet. However, the authors believe not every bubble is created equal, as most price run-ups do not necessarily lead to crashes.
Since AI took centre stage in early 2023, the Magnificent Seven (Apple, Amazon, Alphabet, Microsoft, Meta Platforms, Nvidia, and Tesla) have outperformed the S&P 500 (excluding these stocks) by around 80%. So it is natural that investors should wonder if a bursting bubble is coming.
Building on previous academic research and nearly a century's worth of US stock data spanning 49 industries...................... To view our full article Click here
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