The stock market is full of contradictions, and nobody – not even the world’s best investors – has a perfect record when it comes to predicting which companies will create millionaires. Today’s tech behemoths – Microsoft, Amazon, Apple, and Alphabet – were long shots when they launched. Most people expected them to fizzle out, but the few who had faith realized tremendous returns.
Everyone wants to find the next millionaire-maker stock and get in on the ground floor. The trouble is that investors tend to follow the crowd. They see excitement over a particular company on social media, or they hear about a new technology from news program personalities. They buy into whatever is trending, whether or not the price is supported by fundamental value.
Unfortunately, the vast majority of these trends collapse in spectacular fashion. Either the hype around particular companies results in them becoming wildly overvalued, or the technology, business model, etc., can’t deliver on its promises. In either case, investors lose money when the bubble bursts, and share prices abruptly drop to levels more in line with the companies’ intrinsic value.
The best-case scenario occurs when this happens with a single stock. For example, the remarkable rise and subsequent fall of GameStop wasn’t a calamity for the economy as a whole. The worst-case scenario is when an entire industry falls apart. The dot.com disaster in the early 2000s and the real estate implosion of 2008 sparked periods of financial hardship for millions of people.
AI Stock Bubble
Today, investors are scrambling to buy AI stocks, and the financial world is watching with great interest. Some are convinced that the AI stock bubble is poised to pop, while others believe the growth in AI stocks is a sustainable long-term trend.
Both sides are persuasive, but a critical point is being overlooked in the conversation. Is the possibility of an AI stock bubble the only concern, or is another bubble forming quietly in a part of the tech industry no one is watching?
Factors That Led to AI Bubble
Bubbles occur when stock prices go up sharply, even though there is nothing to support that growth. Investors are persuaded that the underlying technology is going to be hugely profitable at some point in the future, and that unsupported optimism prompts them to buy at any price. Is that happening right now with AI? Maybe.
Many companies are developing AI capabilities. Established industry leaders like Amazon, Microsoft, Alphabet, and Apple have the resources and capabilities to take on development of AI technology before it is profitable. They have advantages that support their rising share prices (more or less), and buying these tech stocks now gives investors exposure to AI-related gains at prices that don’t appear to be excessive or bubble-like.
Risks of Investing in AI Stocks
However, most of the pure AI stocks are seeing stock price increases that don’t align with their intrinsic value and exceed their near-term prospects. For example, C3.ai was founded in 2009 by Thomas Siebel – the same Thomas Siebel that made a multi-billion dollar fortune with his successful enterprise software company, Siebel Systems.
Siebel’s experience and expertise lend credibility to this new venture, but many analysts believe C3.ai stock’s year-to-date gains of more than 240 percent are over the top.
After all, the company’s revenue went down by five percent year-over–year, and it has yet to see a profit. That may turn around eventually, but investors who buy C3.ai stock at its current price will have a long wait before big returns start rolling in, if they ever do.
In short, paying high prices for pure AI stocks is a high-risk gamble. Though Artificial Intelligence is likely to have an important role in the future of technology, chances are that once the novelty wears off and the constant media discussion dies down, the pure AI bubble will burst.
Those that choose to hold onto their overpriced AI stocks may eventually recover their investment and perhaps realize a profit, but they will miss out on more lucrative opportunities in the meantime.
With that said, is focusing on the AI bubble taking attention away from a more serious issue? Is there another tech bubble about to burst?
Quantum Computing: The Next Bubble
If you haven’t heard of quantum computing, you will. In the tech world, many believe it will ultimately be as transformative as the introduction of personal computers and widespread access to the internet.
At the most basic level, quantum computing is exponentially faster than classic computing. It’s not an advanced version of traditional computer hardware and software – it is an entirely different approach.
Current technology relies on transistors to make calculations. Transistors can represent either “0” or “1”. Quantum computing uses qubits, which can represent “0” or “1” simultaneously, so quantum computers can process data and make calculations at a rate that has historically been impossible. It could, in theory, solve extremely complex problems in seconds rather than the centuries a classic computer would require.
When this technology is ready for mainstream applications, it will change the course of countless industries, from medical research to automated vehicles. That potential has motivated investors to pour money into companies that are developing quantum computers for real-world conditions.
Some analysts believe that investors’ excitement over quantum computing is creating or has already created a bubble that is doomed to burst. Yes, the technology will be transformative once perfected, but it isn’t even close to being ready for widespread use.
It has been in development since the 1980s, and there has been little progress toward a product that is useful in commercial settings. The bottom line is that for the foreseeable future, there is no chance of profit, which is a textbook characteristic of a bubble.
Top Quantum Stocks To Buy
Of course, some investors are willing to take on the risks associated with long-shot technology or technology that won’t be profitable for decades. They aren’t concerned with a possible bubble because they plan to hold their long-shot stock forever. In that case, the best quantum stock to buy is IonQ – the only pure quantum company that is publicly traded.
For those who want exposure to quantum computing without the risk inherent in unproven, unprofitable technology, established tech companies are the way to go. Alphabet, Honeywell, IBM, Microsoft, and Nvidia are all working with quantum computing in some form, and when quantum technology is ready for commercialization, they stand to make substantial profits.
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