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The dot-com bubble taught investors to be wary of stock-market rallies powered by a technological boom—that is, until generative artificial intelligence sent tech stocks soaring this year.

Shares of Nvidia NVDA -0.39%decrease; red down pointing triangle, the graphics-chip maker at the heart of the frenzy, have nearly tripled in 2023, while the Nasdaq-100 has climbed 38% and the S&P 500 has gained 16%.

For some investors, the surge in Nvidia—now the fifth-largest U.S. company by market value—is difficult to chalk up to anything but speculative mania. Its weighting in the benchmark stock indexes means everyday investors are at the whims of its trajectory, whether they believe in AI’s potential or not.

“There’s a huge boom in AI—some people are scrambling to get exposure at any cost, while others are sounding the alarm that this will end in tears,” said Kai Wu, founder and chief investment officer of Sparkline Capital. “Investors can benefit from innovation-led growth, but must be wary of overpaying for it.”

Nvidia is the primary producer of semiconductors backing artificial-intelligence systems. The company forecast a record $11 billion in sales for the recently ended quarter when it reported results in May, catching analysts off guard with the projected surge in customer demand.

“That’s when the excitement around AI really ramped up,” said Ryan McCormack, an Invesco senior exchange-traded fund strategist. 

The hype has driven companies such as Meta Platforms and Amazon.com that have been building out AI capabilities, he said. Shares of the tech giants are up 154% and 65% in 2023, respectively. Microsoft, which has climbed 35%, has poured billions of dollars into OpenAI’s ChatGPT, a chatbot that can answer difficult questions in seconds.

The furious rally in those stocks, long the market’s biggest drivers, has fanned worries about market concentration. The 10 biggest stocks in the S&P 500 now comprise more than a third of the market, according to Dow Jones Market Data. They represented 27% of the index at the start of the year and less than a quarter in 2000.

“The market story that rhymes most with the internet bubble is the concentration of leadership,” said Mike Edwards, deputy chief investment officer of Weiss Multi-Strategy Advisers.

Nvidia’s second-quarter earnings report, due Aug. 23, will provide insight into whether its inexorable rise is well-rooted in demand for chips, or a product of hype. The stock gained 24% in the trading session after its earnings reported in May, and 14% the day following February’s results.


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