Investors in artificial intelligence (AI) stocks are experiencing significant returns, but concerns about a potential market bubble are emerging. Dan Chung, CEO of Alger Funds, believes the current AI boom is fundamentally different from the dot-com bubble of the late 1990s. With Alger overseeing approximately $33 billion in assets, Chung’s insights come from a wealth of experience, having navigated the tumultuous market as a senior tech analyst during the dot-com era.
In a recent conversation, Chung discussed the nature of the current market, emphasizing that while there are comparisons to the dot-com bubble, he does not believe we have reached irrational exuberance. “A bubble would imply we’re irrational in some way. That’s not correct. I don’t think we’ve gotten there yet,” he stated. Chung highlighted four key factors to consider: market behavior, company fundamentals, valuation, and macroeconomic conditions.
Chung pointed out that the AI sector has seen considerable momentum over the past nine months, but he believes it has yet to reach the heights observed in 1998 and 1999. “I would say we probably still have at least 1998 and 1999 to go through, which is 50% more than today,” he remarked, recalling his experience selling Yahoo at its peak in December 1999.
Comparing Past and Present Market Leaders
Chung contrasted the current AI leaders with those during the dot-com bubble. He used Microsoft as a prime example, noting that while it traded at exorbitant price-to-earnings ratios during the bubble, its current valuation is much more reasonable. “At the very top of the dot-com bubble, Microsoft traded at 67-70 times earnings; today, it’s only trading at 1.5 times the S&P 500,” he explained.
In terms of company performance, Chung highlighted that revenue growth, profit margins, and free cash flow for current tech giants like Microsoft, Google, and Amazon are significantly stronger than those of their predecessors. The collective revenue of these leading companies is projected to reach $1.1 trillion by 2025, with substantial capital expenditure on AI.
Chung also addressed the differences in investor sentiment and market conditions. “The economy was fine in 1998-99. It looks fine today. Interest rates were higher back then,” he noted, suggesting that current conditions may support continued investment in AI technologies.
AI’s Potential and Future Outlook
Chung expressed optimism regarding the potential of AI technologies, referencing the rapid advancements since the introduction of ChatGPT in January 2021. He emphasized that AI could transform industries, with estimates suggesting a market value of $2 trillion to $3 trillion by 2030-31.
As for his investment strategy, Chung remains bullish on companies like Nvidia, which he considers undervalued despite its significant stock price increase. “It’s not the time to sell Nvidia. The stock chart has basically done nothing since July,” he stated, reinforcing the potential for further growth.
Chung also highlighted Nebius, an AI data center company that he believes is on the verge of substantial growth. “We see Nebius going from over $500 million in revenues in 2025 to over $2.5 billion in 2026,” he noted, pointing out its innovative technologies and partnerships with hyperscalers.
While Chung is optimistic about the AI sector, he acknowledges potential risks associated with increased capital spending and the uncertain return on investment from these technologies. “Will all this capital earn a reasonable return? Time-wise, we’re very early,” he cautioned.
In summary, Dan Chung’s perspective as CEO of Alger Funds offers a nuanced view of the AI boom. His experience during the dot-com bubble informs his belief that the current market is fundamentally different and holds significant growth potential. Investors will be watching closely as the AI landscape continues to evolve, shaping the future of technology and finance.
