Artificial intelligence (AI) has captured significant investment interest over the past two years, with a notable surge since OpenAI released ChatGPT in November 2022. The S&P 500 index gained 49% and the Nasdaq Composite surged by 75% as of December 11.
However, investors may fall prey to bubble psychology, expecting markets to continue rising indefinitely. This phenomenon is linked to the Greater Fool Theory, where investors pay a premium for assets hoping others will follow, causing prices to appreciate further.
This article examines how influential megatrends have performed in recent years and assesses historical capital market performance after periods of rapid growth. Specifically, it explores AI stocks’ potential to break out further in 2025 or if they’ll become the Greater Fool.
The last notable megatrend before AI mania was blockchain technology. A simple explanation for blockchain is a giant ledger for transactions. Although the idea has been around for decades, it gained mainstream acceptance over the past decade.
A study benchmarking blockchain exchange-traded funds (ETFs) against the S&P 500 and Nasdaq Composite showed impressive performance from 2018 onwards. However, most of these gains came from specific stocks like AMD and MicroStrategy, which are not inherently blockchain specialists.
The analysis also suggests that timing played a significant role in past performances. While history indicates the Nasdaq and S&P 500 will continue to rise in 2025, it’s essential to invest wisely in AI stocks by focusing on established players or passive index funds with mainstream opportunities.
Past market performance is not a guarantee of future results, but historical data suggests that investing in AI stocks requires caution and careful consideration.
Source: https://www.fool.com/investing/2024/12/15/will-artificial-intelligence-stocks-continue-to-do