"There is a subtle tone shift in how analysts and some retail investors view the market, as more people believe the AI rally has transformed into a bubble. Even if you don't share that view, it is always a good idea to hedge, and defensive dividend stocks like , and are great for doing just that. In the meantime, AI stocks are continuing to rally. Nothing yet indicates a slowdown if you look at the stock market."
"But once you take a look at the balance sheets of the companies spearheading the AI trend, it shows a worrying trend: cash on their balance sheet is decreasing, and depreciation is increasing. Why? Hyperscalers are buying extremely expensive GPUs for AI training, and these GPUs are also depreciating. GPUs have a very short useful life of about 3 to 5 years."
"Still, some investors have an interesting angle on the AI rally. They acknowledge we in an AI bubble, but they believe the bubble will inflate a lot more before it bursts. They cite the 1996 "Irrational exuberance" quote from the then-Federal Reserve Board chairman, Alan Greenspan. The Nasdaq Composite ended up rallying by ~285% through 2000 before finally crashing. Could we be staring down a similar rally in the coming years? Maybe."
A growing number of investors view the AI rally as a potential bubble, prompting suggestions to hedge with defensive dividend stocks. Market prices still show AI stocks rallying, but balance sheets of leading AI companies reveal falling cash and rising depreciation. The depreciation rise stems largely from hyperscalers purchasing very expensive GPUs for AI training, which have short useful lives of roughly three to five years. Some investors expect the bubble to expand further, citing the late-1990s Nasdaq surge as precedent. Maintaining ballast in portfolios via utility and dividend-paying stocks provides resilience against potential downturns.
Read at 24/7 Wall St.
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