Today's AI boom is 'very different' from the 90s dot-com bubble

BMO Private Wealth chief market strategist, Carol Schleif, joins Morning Brief with Yahoo Finance Senior Reporter Allie Canal to discuss whether markets (^DJI, ^GSPC, ^IXIC) are seeing an artificial intelligence (AI) bubble and to share her thoughts on Big Tech companies funding their AI projects with debt.

To watch more expert insights and analysis on the latest market action, check out more Morning Brief.

Video Transcript

00:00 Speaker A

So, you're saying underlying fundamentals remain strong. How much can that offset the concentration risks within this market? Because we've seen the S&P hit 36 record highs, but just six stocks have driven half of those gains. So when you look at this pullback in relation to how concentrated this market is, does that indicate how much deeper the sell-off could potentially go?

00:26 Speaker B

It potentially, but you've also got, it's important to remember that those same companies are the ones driving the bulk of earnings and profitability. and you look at them in terms of, it's not like back in the late 90s. I know there's a lot of folks that want to conflate this with what happened in the late 90s, but it's a very different environment in terms of what's driven the earnings and driven the profitability. Our real companies generating real revenues out of real businesses, their capacity constrained, which is part of why you've got the CapEx going on there. One of the things we are watching is how those are being funded because you're seeing some of the funding happening in the debt markets now as opposed to cash flow. So, yes, that concentration is there, but up until the past few weeks, we were seeing broadening out. There are other companies, other sectors that play into the the build there from an industrial manufacturing, materials. There are a number of different industries too that are generating double digit earnings growth for the season.

01:31 Speaker A

Does that worry you that these Mag 7 players are now funding a lot of their debt or tapping into the bond market to fund a lot of these endeavors?

01:46 Speaker B

Yeah, it's definitely something worth watching and it's worth unwinding because in my own head, we're trying we're trying to figure out, do you get so intertwined? And and I think we're very early in that process because they had very strong balance sheets. They're they're trying to lever responsibly, if you will. They had almost underutilized balance sheets in a lot of cases. But the one thing we want to make sure is that we don't have a concentrated list of of companies and funders that become so intertwined that they all become too big to fail. That's one of the things we're we're watching pretty carefully as well.

View Comments