UPDATE: Alger Funds CEO Dan Chung asserts that the current surge in artificial intelligence (AI) stocks is not a bubble, but rather a significant growth opportunity. In a recent interview, Chung shared insights that challenge the growing fears of a repeat of the disastrous dot-com bubble of the late 1990s.
This urgent analysis comes as stocks tied to AI technologies have seen substantial gains, with Chung highlighting that his firm manages $33 billion in assets. He pointed out that the Alger 35 ETF has surged by 51.83% over the past year, significantly outperforming the 22.87% return of the Morningstar US Large-Mid Broad Growth Index.
Chung, who witnessed the dot-com era firsthand as a senior tech analyst, expressed confidence that the current AI landscape is fundamentally different from the past. He emphasized that the leading companies today, including Nvidia, Microsoft, and Amazon, are more robust and financially sound than their predecessors during the dot-com boom.
“We’re in the middle stages of the boom,” Chung warned, emphasizing the potential for further growth. “You don’t want to miss the second half.”
He believes that we have not yet reached the peak valuations of the late 1990s, noting that the fastest-growing AI stocks are experiencing momentum reminiscent of the late 1998-1999 period, which could potentially drive them up even further.
Chung also provided a stark comparison of current valuations. He pointed out that Microsoft, the biggest software company globally, currently trades at just 32 times earnings—far less than the 67-70 times it commanded at the height of the dot-com bubble. This disparity indicates a more stable market environment today, according to Chung.
Furthermore, he highlighted the impressive fundamentals of major players in the AI sector. The combined revenue of leading firms, including Google, Meta Platforms, and others, amounts to $1.1 trillion, with projected operating cash flow of around $550 billion in 2025. Chung remarked, “These numbers are way better than the leading stocks of 1999.”
Chung’s insights extend to his stock picks, asserting that now is not the time to sell Nvidia, despite its recent climb. He described the company as a leader in AI technology with a potential for continued growth, predicting that its earnings will expand by 65% and free cash flow by 67% this year.
Chung also mentioned smaller, promising companies like Nebius, which he believes could grow exponentially, projecting revenues to jump from over $500 million in 2025 to more than $2.5 billion in 2026.
As AI continues to evolve and integrate into various sectors, Chung stresses the importance of understanding the potential impact on the job market and overall economy. He noted that while the technology could replace many jobs, it also offers substantial productivity gains that could redefine industries.
In conclusion, Chung’s perspective provides a compelling case for optimism in the AI sector, urging investors to consider the long-term potential rather than focusing solely on immediate market fluctuations. With the AI revolution still in its early stages, stakeholders are encouraged to stay informed and engaged as developments unfold.