Transcript:

Hi, I’m Ameya Hattangadi, Associate Portfolio Manager at Morningstar Investment Management. Welcome to the Morningstar Market Minute, a video series where we explore markets, the economy, and other notable trends every Friday lunchtime.

Not a week goes by without something about the AI boom. The latest headline, of course, came from Nvidia’s highly anticipated earnings result. The company posted better-than-expected earnings and revenues, and even its forward guidance came in above expectations. The stock jumped in after-hours trading and once again, we all marvelled at CEO Jensen Huang’s genius. The market breathes a sigh of relief. We’ve been here before, yet this time feels a little different.

Over the past few weeks, there’s been a growing sense that expectations for AI may have gone too far, maybe even into bubble territory. Some investors are wondering if the stage is set for a comedown that is just as dramatic as the climb.

JP Morgan estimates AI-related stocks now make up about 45% of the S&P 500. At that size if one company sneezes, the whole market catches a cold, especially given the interconnectedness of the AI ecosystem.

We got yet another example this week of the circular relationships between major AI related companies. AI giant Anthropic announced a strategic partnership with Nvidia and Microsoft, involving tens of billions of dollars. These kinds of links can facilitate innovation and cooperation, but they also create vulnerabilities. Trouble in one area can quickly spread through suppliers, customers, and shareholders alike. It would only take one major AI player stumbling to send shockwaves across the market. No wonder everyone was watching Nvidia’s results so closely.

For us though, the focus remains on the bigger picture and on sticking to our core investment principles. One of those is that valuation matters more than hype. No matter how attractive a theme or company looks, the price you pay is what ultimately determines your long-term return.

And right now, we’re finding better opportunities in emerging markets like China and Brazil, and sectors like healthcare and consumer defensives, where prices are more reasonable and growth potential remains robust.

That’s it for this week’s Market Minute. Thanks for watching—and we’ll see you next Friday.