People are chasing AI stocks like 'dogs chase cars' - and a crash looks certain, veteran investor Bill Smead says

"The AI boom is a 'bubble' driven by the 'momentum' of soaring stocks like Nvidia, fund manager Bill Smead has said. "Dogs chase cars, and people chase stocks," Smead Capital Management's founder and chief investor told Business Insider in an interview. Nvidia shares have surged 12-fold since the start of 2023, supercharging the AI chipmaker's market value to an unprecedented $4.4 trillion. Palantir shares have soared 28-fold over the same period, valuing the maker of AI-powered data-analysis software at around $420 billion. "We're in the crazy stage," Smead said, giving the example of CoreWeave, which generated $1.2 billion of revenue last quarter but has a $60 billion market value. The AI cloud-computing company reported a $30 billion revenue backlog at the end of June, underpinned by an expanded agreement with key customer OpenAI."

""It is late '99," Smead said, referring to the period just before the dot-com bubble peaked in March 2000. "This is, from a fundamental standpoint, identical to all the past major manias," Smead said. "We're bumping up against history real hard now." Smead said the problem isn't whether AI companies realize the technology's potential benefits, but that "whatever success they might have has already been massively overcapitalized." He said that "when this thing breaks," people will only be willing to buy AI stocks at a fraction of their current price. Oracle stock jumped 40% in a day earlier this month after it forecast rapid revenue growth in its cloud infrastructure business, which caters to AI companies such as OpenAI. But if it can rise so much in a day,"

The AI stock surge is driven by momentum and has produced extreme valuation increases across major companies. Nvidia's shares climbed roughly twelvefold since early 2023, pushing its market value to about $4.4 trillion. Palantir's stock rose roughly twenty-eightfold to around $420 billion. Some AI-related companies display outsized market caps relative to revenue, such as CoreWeave’s about $1.2 billion quarterly revenue and roughly $60 billion valuation with a $30 billion backlog. The pattern resembles late‑1999 dot‑com mania, and many AI successes appear massively overcapitalized. A market reversal could leave AI stocks trading at a fraction of current prices.

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