Billionaire Mike Novogratz called AI a “massive bubble.” Where should investors look?
A well-known investor believes it could be several more years before the bubble bursts, and identifies the beneficiaries of the ongoing rally
Despite the risks, Novogratz believes investors should hold onto their investments in technology companies for now / Photo: Getty Images/Getty Images for Friends of Hudson River Park)
The hype surrounding artificial intelligence is definitely a bubble, said Mike Novogratz, founder of the cryptocurrency firm Galaxy Digital and former Goldman Sachs partner, on the Money Rehab podcast. He admits that the market could continue to grow for several more years—and is convinced that as long as money keeps flowing in, it makes no sense to ignore the rally. At the same time, the investor—whose fortune Forbes estimates at $4.6 billion—acknowledges that it’s impossible to predict exactly when the crash will happen. So what does he recommend betting on?
The Largest Bubble of Our Time
The AI bubble already exists and is bound to grow even larger, according to Novogratz. Speculative hype always surrounds new technologies, and it can begin long before innovations lead to real change. For example, at the peak of the dot-com bubble in 1999, people weren’t yet actively using the internet—they were mostly just talking about it—but investors were already snapping up shares in internet companies, he continued.
“That’s when the market reached its peak, a level the NASDAQ index didn’t return to until 16 years later. It was the same with the railroad bubble in the 19th century. But the artificial intelligence bubble is a far bigger story than the railroads. Larger than the internet. Larger than cryptocurrency. It is the defining investment narrative of our generation, and that is why the most massive bubble of our time will form here.”
Novogratz believes that the constant stream of new products is reinforcing investors’ confidence in the potential of artificial intelligence: the market is currently impressed by Meta’s personal AI agent, Muse, and is awaiting the release of similar products from Amazon and Google, which may prove even more effective. The investor believes that AI has enough potential to sustain market interest for several more years.
"I don't think the AI bubble has peaked yet. And who knows, maybe Nvidia's market cap will reach $10 trillion before it all crashes."
But so far, in his view, the market has not seen the kind of rapid surge in prices that usually precedes the bursting of a speculative bubble. According to his scenario, the first sign will be a 20–25% crash in the Nasdaq, followed by a rebound as investors begin buying up the now-cheaper stocks, but then another pullback. “And when that second pullback begins—that’s when you’ll realize it’s all over,” Novogratz said.
Where can an investor make money?
Despite the risks to the U.S. economy and the threat of an AI bubble bursting, Novogratz believes that investors should hold onto their investments in technology companies for now. He sees opportunities for further growth in several areas:
Major technology companies. Novogratz recommends maintaining investments in the “Magnificent Seven” and hyperscalers developing AI infrastructure. He believes they continue to generate huge profits despite concerns about the overvaluation of their stocks. The investor also singles out Meta, whose stock he considers undervalued. He forecasts that the stock could rise by another $100 or so. Meta’s stock is currently trading at $750 per share.
South Korean memory manufacturers. Novogratz considers the stocks of Samsung Electronics and SK Hynix to be attractive, as they are benefiting from rising demand for AI memory. According to him, the stocks of these companies are cheap relative to their earnings—trading at about three times their annual earnings. Novogratz believes that a company’s ability to earn an amount equal to its market capitalization in just three years provides investors with a certain degree of protection. He also suggests considering the KOSPI index, in which these companies hold a significant share.
Cybersecurity. Novogratz believes that cybersecurity companies will be among the main beneficiaries of AI. He himself has encountered restrictions on the use of new technologies: due to security requirements at the company he heads, the investor can only use the AI agent Muse on his personal phone.
Private AI companies. According to him, private companies that develop AI and the necessary infrastructure can now generate extremely high returns. For example, Galaxy has invested in the chip manufacturer Etched, which is developing a chip that is faster than Nvidia’s solutions.
The Macroeconomic Impact of AI
The AI bubble is nearing its peak and will begin to burst as interest rates continue to rise, said Ray Dalio, founder of Bridgewater Associates, in early October. According to him, rising interest rates will drive the U.S. into a debt spiral, where the government will have to borrow more to curb the growth of the budget deficit. Novogratz shares his concerns but also believes that the development of AI could support the U.S. economy.
"Our only real hope that Ray Dalio is wrong and that the U.S. won't go bankrupt is that AI will work—that it will be able to deliver 4–5% economic growth with 2% inflation."
According to Novogratz, large-scale investments in AI infrastructure are currently one of the factors driving inflation. However, once data centers are completed and AI is widely adopted, productivity gains could lower companies’ costs and create conditions for more affordable goods and services.
"For America to climb out of its $41 trillion debt hole, artificial intelligence must deliver."
This article was AI-translated and verified by a human editor
