Avoiding the AI Bubble: The Case for Diversification in the Investment World”.

The booming AI industry has led to unprecedented levels in the US stock market, but investment strategist Paul Jackson warns of a potential correction. While US stocks are viewed as expensive and AI is seen as a bubble waiting to burst, the link between the two lies in the fact that stocks associated with AI have skyrocketed, driving up overall market valuations.

Investors should avoid unnecessary risks by considering alternative markets, especially in Europe. Despite past disappointment in Europe’s economic growth compared to the US, this year Europe has shown positive surprises while the US economy is slowing down. Europe’s per capita growth is actually higher than in the US, despite slower overall economic growth. This challenges the notion of dynamic growth in the US, which is largely fueled by population growth and government borrowing.

With high government deficits, rising debt servicing costs, and potential instability from a second Donald Trump presidency, investors should diversify away from US equities and towards other markets that offer better valuations, such as Europe, China, and emerging markets. Taking a critical view of US equities and high-yield bonds and instead favoring commodities and real estate investments reflects a focus on valuations rather than blindly following capital-weighted indices. Investors should think for themselves and avoid falling into the trap of comparing their portfolio performance to market indices. By questioning the status quo and focusing on fair value investments, investors can mitigate risks and potentially enhance their long-term returns.