There isn’t just one AI bubble, strategist says — there’s a ‘rolling sequence of bubbles’ instead

Dhaval Joshi, a former chief strategist at Counterpoint at London's BCA Research, challenges the notion that AI is a single bubble, arguing instead that it is a "rolling sequence of bubbles." Joshi believes that investors are misjudging which AI sectors will capture the technology's value and then correct their assessments. For instance, the software-as-a-service (SaaS) sector experienced a surge in valuations due to the belief that AI would enhance productivity, but this bubble burst when investors realized AI agents threatened the SaaS subscription model.

Other sectors, such as silver and semiconductors, also experienced booms and busts. Joshi predicts that astronomical profit margins in semiconductors will eventually correct as demand and supply balance out. Joshi suggests that the market's rapid reassessment of AI-related investments is akin to a mania, rather than a fundamental correction.

He emphasizes that while the cyclical nature of the reinflation has prevented a correlated selloff so far, the high levels of overspending and capital expenditure to overtake free cash flow pose a significant risk. The debate centers on whether this overspending is rational or not, with major financial institutions expressing concerns over elevated valuations.