AI surge not a bubble yet, says Wharton Professor Jeremy Siegel

Investors are optimistic about the potential of artificial intelligence (AI) as the technology continues to grow. Although some worry about a possible bubble forming in the AI market, renowned economist Jeremy James Siegel and Russell E. Palmer, professor of finance at Wharton University of Pennsylvania, do not believe it is a bubble yet.

In a Monday interview with CNBC, Siegel explained that the current situation is different from the dot-com bubble of the late 1990s. This refers to a period between 1995 and 2000 when investors bought stocks of internet-based startups hoping for high returns but were met with market failures instead.

The Wharton professor has been asked whether the increased interest in AI will lead to a repeat of the dot-com bubble.

Nvidia Reports Impressive Q1 Earnings Fueled by Interest in AI

Siegel believes that the current excitement around AI is driven by two things: the interest in the technology and the success of companies like Nvidia, a leading provider of AI chips. Nvidia, an American-based multinational tech firm, recently reported blowout earnings in the just-concluded quarter. This caused its shares to rally by 24% and reach an all-time high.

The demand for Nvidia’s chips in AI applications has been skyrocketing, driving the company’s market capitalization close to $1 trillion. During the earnings call, Nvidia’s CEO, Jensen Huang, confirmed the surging demand for their data center products. Year-to-date, Nvidia shares have surged by an impressive 166%.

While the Wharton professor acknowledges that Nvidia shares may be slightly overvalued in the long term, he emphasizes that momentum can carry stocks far higher than their fundamental value in the short term, noting that predicting how high these shares might go is difficult.

″[In the] long term I would say that [Nvidia shares] were probably slightly overvalued. But for the short term, we know momentum can carry stocks far higher than their fundamental value, and no one can predict how high they might go,” Siegel said.

Since the launch of ChatGPT, a generative AI chatbot designed by OpenAI in November last year, interest in such technologies has skyrocketed, causing panic that AI might replace humans.

Companies like Adobe and Activision Blizzard have recently joined the AI bandwagon to empower human creativity.

Earlier this month, Adobe introduced its “Generative Fill” AI to support graphic designers using Photoshop to create unique content. Like Adobe, Blizzard also plans to launch an image-generating system to assist humans.

In April, e-commerce giant Amazon announced the launch of its “Amazon Bedrock”, which offers Amazon Web Service (AWS) users the opportunity to build their own generative AI technologies using its foundation models (FMs).

The company aims to make AI development more accessible by providing a secure online service that enables corporate entities to create their own applications.

Amazon claims that the new service can run AI software more effectively and affordably than other competitors, aiming to make AI technology available to a broader range of businesses.

In addition to Amazon Bedrock, the e-commerce giant has incorporated AI into its platform to improve its delivery speed. The new tool will assist shoppers in locating the nearest warehouse with the products the customer needs.