ACG Insights: Somewhat Rational Exuberance

(Download the full report HERE)

  • Since the launch of ChatGPT in 2022, equity markets have raced higher on hope and hype around the future of Artificial Intelligence (AI)
  • The combination of a new technology and investor exuberance has given rise to talks of a market bubble
  • While markets have become historically concentrated in a few stocks that have benefitted from the AI boom, market-level signs of excess are arguably still hard to find
  • Investors will have to weigh the risks from pockets of excess in markets with the risk of missing out on further appreciation should the AI boom keep growing

Introduction 

Two well-worn quotes about financial markets feel particularly relevant to the current market cycle. The first is attributed to the famous economist John Maynard Keynes who noted, “the market can stay irrational longer than you can stay solvent.” The second is from investor Peter Lynch who said, “far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves.” The Keynes quote gives context to market bubbles, where exuberance and fear of missing out can push prices beyond rational levels for extended periods. Lynch speaks to the other side of the trade, where fear of an impending crash leads investors to derisk and miss out on further market appreciation. If the current hype surrounding Artificial Intelligence (AI) is a bubble, it is perhaps the most widely discussed one in history. There are two immediate questions that come to mind: Is the market, at this point, acting irrationally? And how will AI impact the broader market and economy? Definitive answers to these questions are difficult but worth pondering.

Exhibit 1: Attention on AI Risks Increasing

somewhat rational exuberance

Download the full report HERE where we discuss:

  • Is the Market Being Irrational? 
  • Comparisons to Other Booms and Bubbles 
  • Where to Look for Irrationality 
  • What Comes Next? 
  • Asset Allocation Decisions 
  • Conclusion

Sources

  • Coatue: Public Markets Update 10-2025
  • https://cogentsw.com/investment-management/more-money-is-lost-waiting-for-corrections-than-in-them/
  • Sparkline Capital, “Surviving the AI Capex Boom”
  • Invesco, Trending Conversations: Are we in an AI bubble?
  • Coatue: Public Markets Update 10-2025
  • See Derek Thompson at https://www.derekthompson.org/p/artificial-intelligence-could-be or Kai Wu at Sparkline Capital “Surviving the AI Capex Boom” for further reading
  • Goldman Sachs Research: Global Strategy Paper no. 73 \
  • Bloomberg
  • https://www.acadian-asset.com/investment-insights/owenomics/straight-talk-about-circular-deals-in-ai 
  • Morningstar Direct
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