So here’s the thing about AI stocks right now: they’re basically the financial equivalent of that friend who insists on ordering the $30 truffle pasta at every restaurant. Sure, it might be good, but you’re definitely paying a premium.
GMO, a $64 billion investment firm that’s been around long enough to have seen some stuff, just dropped some reality on us. Their take? The AI hype train has officially made US stocks more expensive than a Taylor Swift concert ticket. We’re talking 90th percentile expensive compared to history – which is finance speak for “yikes.”
John Pease from GMO isn’t calling it a full bubble (yet), but he’s definitely giving us the side-eye. The problem isn’t just that AI stocks are pricey – it’s that they’ve dragged the entire market along for this expensive ride. Think of it like gentrification, but for your portfolio.
The “Magnificent Six” (that’s the Magnificent Seven minus Tesla, because apparently even GMO has standards) are trading at 30 times earnings. To put that in perspective, that’s like paying $30 for a burger because the restaurant has really good Instagram lighting. Sure, maybe it’s worth it, but probably not.
Here’s where it gets interesting: these tech giants are pivoting from software to AI infrastructure, which means they’re suddenly spending massive amounts on physical stuff – servers, data centers, the works. Historically, when companies go on these capital expenditure sprees, consumers win big, but shareholders? Not so much. It’s like watching your favorite indie band sign to a major label – great for everyone except the original fans.
So What’s a Smart Investor to Do?
GMO has two suggestions that are basically the investment equivalent of shopping at the outlet mall instead of Fifth Avenue:
1. Go International
While everyone’s been obsessing over US tech stocks, international markets have been sitting there like the quiet kid in class who actually knows all the answers. UK, European, and Japanese stocks are trading at 33% to 55% discounts compared to American stocks. It’s like finding designer jeans at Costco prices.
2. Embrace Deep Value Stocks
These are the stocks that everyone’s ignoring because they’re not sexy enough for TikTok. But here’s the thing – they’re as cheap relative to growth stocks as they were during the dot-com bubble. Remember how that ended? Spoiler alert: the boring stocks eventually had their day.
Pease puts it perfectly: “They’re so discounted, it’s very easy for them to surprise to the upside.” Translation: these stocks are like that restaurant with terrible marketing but amazing food – once people discover them, watch out.
The bottom line? While everyone’s fighting over AI stocks like they’re the last iPhone on Black Friday, there might be better deals hiding in plain sight. Sometimes the best investment strategy is just being willing to look where everyone else isn’t.
Just remember: in investing, as in life, the most expensive option isn’t always the best one. Sometimes you just need to know where to look for the good stuff.