Beware of the ‘Concentrated’ AI Chipmaker Bubble

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There’s an obvious bubble in the markets, according to James Ferguson, founder of MacroStrategy Partners, but it’s “concentrated.” It’s specific to artificial intelligence—and even more specifically chipmakers. So intense is their outperformance of late that the top 10 stocks in the S&P 500 now make up 35% of the entire index (note that Nvidia is up 150% this year). On this week’s Merryn Talks Money, Ferguson tells host Merryn Somerset Webb that historically, such a tight concentration ends badly.

But on the plus side, it means investors can make the easy decision of not putting their money in those stocks. When a bubble is this obvious, avoiding it is by far the best option, Ferguson says. The other bit of good news is that the chipmakers aren’t the only game in town. He says there is an awful lot of value knocking around in the US and all over the rest of the world, particularly in the UK. In Britain, valuations are far too low and falling interest rates will soon mean fast rising stock prices, Ferguson predicts. He also mentions Spain, Italy and many of the emerging markets. Shift your money to some of these markets, he advises, and the AI bubble will no longer be a worry.