In recent years, the tech landscape has been abuzz with the promise and potential of an Artificial Intelligence (AI) technology advancement which would allow to relaunch the market. It has been been a long wait, but here we are. Most companies rush to integrate AI technologies into their products, with every company trying to put the word AI in its guidance report in the hope to see its market capitalization grow since investors are eagerly seeking to capitalize on this burgeoning market. The subject of quantifying this future marketsize is still an ongoing debate as nobody is able to truly understand the demand and the future AI application impact on products and services. One of the most prominent players in this arena is Nvidia, whose stock price has soared on the back of its AI-related ventures. However, as excitement around AI stocks reaches fever pitch, some analysts are sounding the alarm, warning that these valuations may be indicative of a speculative bubble.

It is important to remind everyone that the psychological mindset of the market is quite polarized by the fact that we are facing a truly fascinating period, and that tech is starting to be a subject moving too fast for our common mind. As it is not an overstatement to assume that most people are optimistic on the AI subject, it should be interesting to remind everyone that the covid crisis exerted adverse impact on major equity markets. What I call the global investor, meaning the market, was praying for a recovery.

What he didn’t expect, was that he wouldn’t get a classic recovery, but an absolute AI boom.
If I summarize, we were in a dark period in which every equity investor was suicidal when looking at his stock portfolio, and almost 2 years later, he’s facing a bull market like he has never seen in 20 years.
There is no way that the common investor is staying rational in this situation.
AI stocks were his savior, it is now his battle horse.

There is no way that his valuations (if he even do business valuation) are not disturbed by his overoptimism. The excitement surrounding AI stocks is understandable given the transformative potential of AI technologies, but these valuations may be unsustainable when you see how much people have jumped in the AI stock train. Everyone wants a piece, completly discarding the essence of valuation.

The valuations of many AI stocks, including Nvidia, have reached dizzying heights, far outstripping their underlying fundamentals. Price-to-earnings ratios and other traditional valuation metrics are often sky-high, raising concerns about overvaluation (you can see my valuation here).
My personal valuation on the subject caused me issues on finance forums but since then we have seen a -15% decline, stating that I was not wrong on the subject. We are only at the beginning in my opinion.
Future earnings reports will bring back reality in the minds of people and they will realize that the demand will be different to what they expect. In the long term, mayble the demande is what they expect, but the short term target is not what they think.

The hype surrounding AI stocks has led to a fear of missing out (FOMO) among investors, driving prices even higher. This herd mentality can fuel speculative bubbles, as investors pile into stocks without fully understanding the real demand and mechanisms.

It truly reminds me of the dot com bubble and you can’t deny me that right. I compare both situations in my NVIDIA stock analysis and as time goes by, the more I’m convinced that I’m right.

That is why I closed my entire position in MSFT, as I don’t want to partake in this madness as valuation as been too uncomfortable for my own taste, and I don’t want no shares in an object of speculation.
Yes, even after buying MSFT at 240$/share and making a +77% gain (I sold at 425$), I still sold my winner.
At the current moment, the only AI stock I still own is GOOGL that I bought sub 100$.

Only thing that you have as a value investor, is your investment principles, and even when it feels unnatural, you have to follow them.