Ed Yardeni says markets are showing AI fatigue, warns against chasing single AI stocks

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.