Wall Street veteran and Yardeni Research President Ed Yardeni said he has turned more cautious on the artificial intelligence trade, arguing that markets are already showing signs of "AI fatigue." According to Morningstar, Yardeni said it is difficult to identify the ultimate winners and losers at this stage, so investors should avoid chasing individual AI names directly. For those seeking AI exposure, he said diversified vehicles such as Nasdaq-100 index funds are a better fit.
Yardeni added that he prefers sectors likely to benefit from AI adoption rather than companies whose appeal rests only on AI technology itself. He specifically pointed to finance, healthcare, industrials, and energy. He also contrasted the current rally with the dot-com bubble, saying the late-1990s run was driven by FOMO, while today’s market is supported by what he called FEMO, or "fantastic earnings momentum." He cited forward price-to-earnings ratios of about 17 for semiconductors and around 20 for the broader market, both well below 1999 bubble levels. Yardeni said the "Roaring 2020s" still have roughly an 80% chance of continuing as long as the U.S. economy avoids recession.
Wall Street long-time bull and Yardeni Research President Ed Yardeni has grown more cautious on the AI trade, according to Morningstar.
Yardeni said markets are already experiencing "AI fatigue," making it hard to determine the eventual winners and losers. For that reason, he does not recommend that investors chase individual AI stocks directly. Investors looking for AI exposure may be better served through diversified allocations such as Nasdaq-100 index funds, he said.
Preference for sectors that benefit from AI adoption
Rather than making a pure bet on AI technology companies, Yardeni said he favors industries that stand to gain from AI applications, including finance, healthcare, industrials, and energy.
How he distinguishes today’s market from the dot-com bubble
Yardeni said the internet bubble was largely driven by FOMO, or "fear of missing out." At one point, the S&P 500 forward price-to-earnings ratio rose to 25, while the technology sector reached about 55.
Today, he said, the rally is being driven by FEMO, short for "fantastic earnings momentum." As earnings expectations continue to move higher, valuation multiples have actually declined. He put the semiconductor sector at roughly 17 times earnings and the broader market at about 20 times, both well below levels seen during the 1999 bubble period.
Still constructive if the U.S. avoids recession
Yardeni said the "Roaring 2020s" still have roughly an 80% chance of continuing as long as the U.S. economy does not fall into recession. Even if geopolitical shocks emerge, he added, market pullbacks have often provided opportunities to re-enter.
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