Fabrizio Bensch/ Reuters
- The stock market’s AI craze isn’t a bubble, according to Fundstrat’s Tom Lee.
- That’s because there’s real demand for AI solutions amid a worldwide worker shortage, Lee said.
- Lee predicted the S&P 500 could climb to 5,200 this year, implying a 9% gain for 2024.
The stock market’s frenzy over artificial intelligence isn’t a bubble, and there’s real demand for the technology thanks to a worldwide shortage of available workers.
That’s according to Fundstrat’s Tom Lee, one of Wall Street’s most bullish forecasters who nailed his stock market prediction in 2023.
While other Wall Street strategists have warned that the AI craze is overdone, Lee pointed to the tangible need for AI in the economy, given the scarcity of available workers.
That’s a problem that has plagued economies all over the world, including Russia, China, and the US. The unemployment rate in the US remained near a record low of 3.7% in December. That amounts to less than one unemployed person per every available job opening that month, according to the Bureau of Labor Statistics.
“The world is short of workers. There’s a global labor shortage, and there’s demand for AI and automation, and it’s these seven companies, or eight or nine, that are providing these solutions,” Lee said in an interview with CNBC on Monday. “So their market cap’s growing not just because the US economy is growing, but they’re really solving a global problem.”
Markets veterans have warned investors of the dangers of plowing their cash into overhyped stocks. That includes the Magnificent Seven, a group of mega-cap companies that have soared last year from Wall Street’s enthusiasm for AI.
By 2023-end, the Magnificent Seven made up around 30% of the total S&P 500 index, according to S&P Global. That dominance is a possible sign that these shares are overvalued, and have the potential to spark a price correction in the market.
“To us, it doesn’t seem like a bubble. There’s real demand there,” Lee said. “If there is a shortage of workers, we know that over time we have to replace salaried workers with silicone, and that could be several trillion a year of demand,” he later added. “I think it’s too early to say it’s a bubble.”
Lee is among the most optimistic forecasters on Wall Street at the moment, even as investors eye a possible recession on the horizon. In his view, stocks are still on a positive trajectory overall, particularly as the Fed looks poised to cut interest rates later this year. He predicted the S&P 500 could jump to a record 5,200 by the end of the year, implying a gain of about 9% for 2024.