Despite hand-wringing across Wall Street, stocks of leading artificial intelligence (AI) companies are not in a bubble, says Bank of America (BAC).
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In a note to clients, Bank of America says that AI stocks such as Nvidia (NVDA), Super Micro Computer (SMCI), and Google parent company Alphabet (GOOGL) are not in bubble territory, at least not yet. The analysts at the bank stress that, in the last nine asset bubbles over the past 100 years, volatility has consistently risen as the bubble developed.
That is not the case now, says Bank of America. Over the past week, volatility in the benchmark S&P 500 index has fallen 8.5% to the lowest level of the year. The S&P 500 has gone 18 days without a meaningful move higher in volatility, leading to the conclusion that the market, and AI stocks, are not in a bubble.
Asset Bubbles
In its note, Bank of America wrote that “Vol rising with spot has been a signature of asset bubbles historically, but such price action has faded in the same tech mega-caps that exhibited spot-up, vol-up tendencies in Q1 2024.”
The rally over the past month in stocks such as Nvidia and Apple (AAPL) has not been accompanied by a rise in volatility. But in the first quarter of 2024, those same mega-cap technology stocks were rising alongside market volatility. However, Bank of America did write that, “Bubbles can take years to unfold and we could still be in the early stages.”
Is NVDA Stock a Buy?
The stock of Nvidia has a consensus Strong Buy rating among 38 Wall Street analysts. That rating is based on 34 Buy, three Hold, and one Sell recommendations assigned in the last three months. The average NVDA price target of $182.49 implies 8.79% upside from current levels.
