itstargetnews
-
The bubble tech stocks have a few more years before they break out, said tech analyst Gene Munster.
-
The top technology analyst told BI that he thinks the Nasdaq could fall as much as 30% when the bubble deflates.
-
Top hardware stocks like Nvidia will likely face the heaviest losses, he said.
The stock market’s tech-fueled frenzy has a few more years before the air blows out of investors’ favorite trade.
That’s according to Gene Munster, a top tech analyst and managing partner at Deepwater Asset Management. Munster believes AI has fueled a huge tech bubble, and it’s probably two years or so before it bursts, he told Business Insider.
The downturn, which Munster sees coming in 2027, could cause the Nasdaq Composite to drop as much as 30% as growth slows and the AI train fizzles out.
When the dust clears, the market’s top hardware stocks, such as Nvidia and other chipmakers, could end up seeing the heaviest losses, he predicted.
“I agree with that Nvidia will have a day of reckoning, and chip stocks, all trade. And the question for us is not: ‘will the bubble burst?’ It’s, ‘How high are we going to go before the bubble bursts?'” Munster said.
Munster believes that two to three years is a reasonable time frame for the technology trade to continue to swell, given that AI is “paradigm-shifting” and that there are still more AI gains to come.
“Artificial intelligence today is largely a buzzword for most people. They don’t actually use it. Companies talk about implementing, most don’t. And when the bottom line of that starts to hit businesses, margins should go up, earnings should go up,” he said.
At the same time, the market shows signs that the extraordinary growth observed in 2024 will not be repeated in the coming years. The Nasdaq gained 29% last year, driven largely by the AI craze.
Nvidia, Apple, Amazon, Alphabet and Broadcom — five tech stocks that have been the face of AI trading — accounted for 46% of the S&P 500’s total return last year, adding about $6 trillion in value, seconds Goldman Sachs.
Meanwhile, growth expectations for tech stocks are outpacing expectations for other areas of the market. The Magnificent Seven group is expected to see earnings growth of 33% in 2024, Goldman added, although other S&P 500 stocks are expected to grow just 3% in earnings.
However, the mega-cap tech group’s earnings are set to shrink over the next two years.
Investors are also setting themselves up for disappointment if they believe the market’s high flyers can continue to deliver consistent outperformance.
