AI hype is a 'classic example of a big market delusion,' just like the dotcom era, investing pioneer Rob Arnott says

• The AI hype is a “classic example of a big market delusion,” Rob Arnott told the FT.
• It’s just like the dot com era when everyone was laying huge bets the internet would change everything.

Artificial intelligence is like déjà vu all over again, according to investing pioneer Rob Arnott.

The hype has generated a lot of chatter about whether a bubble is forming in the market as a handful of stocks see wild gains on the back of AI development, and Arnott says it’s all feeling a lot like the 2000 dot-com era.

“Substitute AI for internet, and you have exactly the same narrative today,” Arnott said in an interview with The Financial Times. “It’s a classic example of a big market delusion.”

Arnott, the founder of Research Affiliates and the “godfather of smart beta” investing, said it’s not that the market is wrong about the potential of AI, but similar to the 2000s, investors are getting ahead of themselves when it comes to the speed of the transformation coming as a result of the technology.

Take Qualcomm, a company that had risen more than any stock in the world by 1999 — a stock that makes Nvidia look like a “value stock,” Arnott said. The company’s share price crashed almost 60% in 2000. But in the long run, as the tech began gradually seeping into every part of people’s lives, the company has emerged victorious.

“You would have been twice as wealthy today investing in the S&P 500 as investing in Qualcomm back at the start of 2000,” Arnott said. “Furthermore, you had to wait 18 years to be consistently in the black, to have any [capital gain] at all. How’s Qualcomm done as a business? Profits have risen 60-fold!”

He added, “The narrative was correct. But the market bet that narrative would play out a lot faster than it ultimately did.”

Arnott also said he’s not as bullish on AI darling Nvidia (up 26% in January alone), saying competition is already heating up in the chip world.