Recently, more and more Wall Street tycoons began to warn about the formation of a foam, as technology stocks drove the US stock market "all the way up".
Jeremy Siegel, a finance professor from the world's leading business school, Wharton Business School, recently warned that the hype surrounding technology stocks such as Nvidia is approaching dangerous levels. He said, "The speculative foam may be beginning to form, but it is still impossible to judge when it will burst."
Siegel said that it is not clear whether this craze is more like the quiet period of the Internet revolution or the craze period before the Internet foam burst.
This financial guru is one of the few commentators who predicted a rebound in the stock market last year. In December of last year, he expressed an optimistic outlook for this year's prospects. He predicted at the time that the US stock market would rise, an economic recession would not occur, and interest rates would decrease.
Given his consistent optimism, it is surprising that even he now sees the risk of a technology foam.
At the same time, Andy Budden, head of investment at Capital Group, an American financial services company, also said that technology stocks were forming a "mild foam" and had reduced their holdings of some outstanding stocks.
Previously, Bank of America Corp. strategists, including Michael Hartnett, pointed out in mid February that many similarities between technology stocks and previous foam indicate that the "seven technology giants" are approaching, but have not yet reached the level that may lead to the bursting of the foam.
Can Nvidia escape a disaster?
Since the beginning of last year, Nvidia's stock price has surged more than fivefold, bringing the semiconductor company's market value to nearly $2 trillion, surpassing that of Amazon and Alphabet. The huge demand for its GPU products from artificial intelligence companies has driven the company's revenue to grow by 265% year-on-year in the previous quarter, reaching over 22 billion US dollars. Net profit increased by 769% year-on-year to $12.3 billion.
Siegel believes that Nvidia is a "special company" that, in his view, will not be "significantly overvalued or undervalued" and may continue to rise. However, he also warned that the rise of technology stocks will eventually come to a halt, and the pullback may be brutal, and Nvidia is no exception.
In addition, some hedge funds also reduced their exposure to the "tech giants" in the fourth quarter, citing extreme signs, while Cathie Wood, the head of Ark Invest and known as the "female version of Buffett," has been reducing its exposure to Nvidia in multiple quarters.
On the other hand, in recent months, the unemployment rate has been at a historic low, employment growth has been strong, and inflation has remained high, all of which have intensified concerns that the Federal Reserve may not cut interest rates for a long time. This will mean that cash strapped households and businesses in industries such as banks and commercial real estate will continue to bear pressure, and the risk of recession will also increase.
However, Siegel stated that he is not worried because a healthy economy and strong profit background are beneficial for the company and its investors. In his view, there is also almost no sign of inflation rising again.
"Sensitive commodities are early warning signals of inflation, they are very quiet," he said.