John Higgins, chief economist at Capital Economics, warns that the artificial intelligence (AI) company bubble may continue to grow until the end of next year, according to MarketWatch.
There has been recent speculation in the market about the bursting of the bubble after the so-called rotation, a sell-off in tech stocks with the highest market capitalization and a rise in the prices of small-cap stocks, which should now appreciate on the back of expected lower interest rates and a still-healthy economy. Higgins believes this market narrative will not last long.
"In our view, the next sustained and significant rotation will not begin until just before the stock market bubble bursts." And our main assumption is that the bubble will not burst before 2026," writes a Capital Economics economist in a report.
He argues that, as with the dot-com bubble at the turn of the century, AI is a revolutionary technology and investors will be early to realize its benefits. Therefore, according to John Higgins, the bubble could be re-inflated and the S&P500 could rise to 7,000 points by the end of next year, reaching a price-to-earnings ratio of 25, the same as at the height of the dotcom bubble.
The broad American stock market index S&P500 currently has a value of 5439 points and a price-to-earnings ratio of 21.
