(Source – Markets Insider – Business Insider)
The stock market’s current bull rally could extend for another three to five years, driven by a wave of AI innovation, according to veteran tech analyst Gene Munster. As a managing partner at Deepwater Asset Management, Munster believes that a new generation of AI companies going public will propel the market to unprecedented heights, before culminating in a bubble that eventually bursts.
AI: The New Catalyst for Market Growth
Gene Munster, who experienced the highs and lows of the 1990s dot-com boom and bust, sees remarkable potential for both gains and subsequent losses in the stock market. He suggests that the growing adoption of AI technologies will significantly drive market growth.
“We’re in the early stages of what is a three to five-year bull market,” Munster told CNBC on Friday. “If you believe the substance of AI will surpass the hype, then the market will continue to rise.”
He foresees the broader tech sector continuing to lift the market but emphasizes that the real drivers of this anticipated bubble will be smaller, AI-focused companies. “The substance of the bubble will come from a different class of tech companies, particularly those centered around AI,” Munster explained. He expects an influx of AI-first companies going public to significantly contribute to market growth.
Not Just Mega-Cap Stocks: The Rise of Smaller AI Companies
While mega-cap tech stocks, often referred to as the Magnificent 7, will remain well-positioned and benefit from this trend, Gene Munster argues that the substantial appreciation will stem from smaller AI firms. “The Magnificent 7 will continue to be well-positioned, but the 2x to 3x appreciation will come from smaller, middle-cap, and IPO AI companies,” Munster said.
Munster’s bullish outlook is rooted in the belief that AI will have a more profound impact than the internet. “The concept of machines with general intelligence is twice as significant as the internet was,” he stated. He anticipates that some of these smaller AI firms will become the next big players in the market within five years.
A Bubble on the Horizon: Wealth Creation Before the Burst
Despite his optimism, Munster warns that this bull market will eventually evolve into a bubble, ending dramatically towards the end of the decade. However, he stresses that there is substantial wealth to be created before this eventual burst. “This will end in a spectacular bubble burst, but there’s a lot of wealth creation that can happen between now and then,” he said.
Gene Munster also pointed out specific tech giants like Alphabet and Meta Platforms as key holdings in Deepwater Asset Management’s portfolio due to their self-sufficient AI technologies. “These two companies are unique because their AI future isn’t dependent on third-party models,” Munster noted. “Unlike Microsoft, Apple, and Amazon, which rely on external AI models, Alphabet and Meta have in-house AI capabilities driving their growth.”
In conclusion, while Munster foresees a promising bull market driven by AI innovations, he also cautions investors about the inevitable formation and bursting of a market bubble. This forecast underscores the dynamic nature of tech investments and the significant role AI is poised to play in shaping the future of the stock market.
