The dominance of the so-called "Magnificent 7" in the S&P 500 index and their remarkable performance compared to the broader market on Wall Street has, at times, raised concerns among investors about a potential bubble that could burst – similar to the rise and fall of "meme stocks" in 2021. While meme stocks soared due to viral internet phenomena and social media – such as the Gamestop flash mob where small investors gathered via internet forums to push short-sellers out of the stock– , an unexpected hype around artificial intelligence (AI) has been driving stocks of companies advancing this technology since the beginning of the year. The leadership turmoil at OpenAI, whose text robot ChatGPT played a significant role in triggering the AI hype a year ago, immediately reflected in stock fluctuations of tech heavyweights – the Microsoft stock rose after it was announced that ousted OpenAI CEO Sam Altman would lead a new AI team at the Windows company.

In the broader AI sector's stock market gains, Microsoft has seen approximately a 60% increase in its stock in 2023. However, it is Nvidia, not Microsoft, that particularly stands out. The shares of the chip giant, without whose semiconductors hardly any AI application is possible today, have already gained over 230% this year. Alphabet shares climbed 52%, and Meta's stock price advanced a proud 170%.

Ben Laidler, Global Markets Strategist at eToro, believes there is no cause for concern about the formation of a bubble in this regard. "Here, reality is keeping pace with the hype," the investment expert emphasizes. He points to the revenue and profit development at Nvidia. "While the stock has risen by 230% this year, revenue is expected to more than double. A profit jump of around 400% is expected for the third quarter alone," Laidler notes. This implies that the Nvidia stock is presently considered affordable, along with other AI-related stocks. Laidler refers to a 12-month forward price-to-earnings ratio (P/E) of 30 for Nvidia. Microsoft and Apple are at a similar level. Tesla is the only outlier, with its relevance to AI still to be demonstrated.

The excitement in the stocks of AI companies is undoubtedly driven by the "unprecedented performance" of OpenAI, "which is now valued at $6 billion in the private market, a year after we first heard about the company." Nevertheless, the rapid speed at which the new generative AI has been globally accepted is also "unprecedented."

Laidler believes that the enormous stock price jumps in the already market-heavy tech stocks are consistently well-founded. "The companies have growth- and margin-strong business models. They sit on well-filled coffers and increasingly turn out to be true value stocks and growth stocks in one for investors," Laidler summarizes. But the expert also pours a little cold water on the enthusiasm. "In the coming year, the enormous outperformance of the AI-driven heavyweights will not continue in this way", he predicts.

Laidler, like many other capital market strategists, expects that "the narrative will change soon" as investors focus on yet another turn in central banks' interest rate policies. This is expected to lead investors to gradually turn back to the currently weakened cyclical stocks that are currently avoided by many. This could dampen demand for tech stocks.

However, the second phase of the overall AI boom on the stock market might reveal itself soon. "Investors will likely go for stocks of companies whose customers hope for advice in dealing with AI." Laidler thinks of stocks like SAP but also global system integrators like IBM or Accenture. Their stocks currently show very moderate 12-month forward P/E ratios compared to Big Tech. In the third stage, the returns from AI are expected to impact the shares of companies that benefit operationally from AI applications. This influence will be driven by a substantial scale effect. Retailers such as the online giant Amazon and corporations like Walmart could profit as these companies are responsible orchestrating the most extensive supply chains globally. Whether this scenario unfolds by 2024 remains uncertain though.