Lauren Taylor Wolfe, managing partner at Impactive Capital, says the current wave of enthusiasm around AI is a bubble that will eventually burst. In an interview with CNBCShe compared the current AI craze to the dot-com boom of the late 1990s. “We’re absolutely in an AI bubble now. It’s going to burst. I don’t know when. I don’t know the order of magnitude. A lot of people are going to lose money,” she said. Wolfe believes many investors are getting carried away by the hype and could end up with losses when the market corrects.
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As an example of current market excesses, she cited Oklo (OKLO), a nuclear energy company backed by Sam Altman. “It’s the largest weight in the Russell 2000 Value Index (IWN). It hasn’t generated revenue in three years…Today its market cap is $25 billion with no revenue,” she said, calling the situation “insane.” Instead of following trends, Wolfe takes a long-term investing approach. She seeks out strong companies that are misunderstood or undervalued and works with them to help them close the gap between their current market value and their true value.
Wolfe recommends looking at industries that others are ignoring, just like during the dotcom bubble. “It would be better to own a railroad in 2000 than to buy Cisco (CSCO) at 35 times earnings,” she said. While she acknowledges that AI will have a major impact on the economy and that companies like Google (GOOGL) could benefit, she questions whether the current level of investment makes financial sense. Wolfe argued that the trillions invested in AI far exceed the hundreds of billions in free cash flow produced by the Mag 7, making it unrealistic to expect equivalent profits over the next five years.
Is QQQ stock a good buy?
As for Wall Street, analysts have a Moderate Buy consensus rating on the Nasdaq-tracked Invesco QQQ Trust ETF (QQQ), based on 91 buys, 11 holds and zero sells assigned over the past three months, as shown in the chart below. Additionally, the QQQ average price target of $673.59 per share implies 10.1% upside potential.
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