There's no bubble in AI stocks – we are in the early stages of a tech cycle that should see further outperformance, Goldman Sachs says

• The breakneck rally in AI stocks has prompted unflattering comparisons with the dot-com bubble of the late 1990s.
• But Goldman Sachs argues there's no bubble in AI stocks, and suggests they have more room to run.
• "We are still in the relatively early stages of a new technology cycle that is likely to lead to further outperformance," a strategist at the bank said.

A stunning surge in artificial intelligence-related tech stocks has been the top US stock-market story of the year, with the likes of Nvidia delivering triple-digit returns.

The breakneck rally has prompted experts including economist David Rosenberg and fund manager Bill Smead to  compare it with the dot-com bubble of the late 1990s, which ended in a crash.

But Goldman Sachs is pushing back against that notion.

"Even as those stocks have rallied substantially, they don't appear to be in a bubble," Peter Oppenheimer, chief global equity strategist in Goldman Sachs Research, said in a recent note, referring to AI stocks. "We believe we are still in the relatively early stages of a new technology cycle that is likely to lead to further outperformance."

"The valuations of the stocks leading the market are not as stretched as in previous periods, such as the internet bubble that collapsed in 2000, and the companies have unusually strong balance sheets and returns on investment," he added.

While tech stock valuations are high, the seven biggest US companies in the AI race collectively hold an average price-earnings (P/E) ratio of 25, according to Oppenheimer. That compares with a level of 52 for the biggest companies at the peak of the internet bubble, he wrote. 

The rally in AI stocks this year has surprised even some equity bulls.

Dan Ives of Wedbush Securities is among those who disagree that tech stocks are on the verge of a dot-com-like collapse. He has likened this year's AI boom to a "1995 moment", similar to the advent of the internet. 

Nvidia, the latest darling of Wall Street, has surged a stunning 207% this year, prompting some critics to suggest the stock may be overvalued.

Among them is David Trainer, CEO of research firm New Constructs. "We're not denying that Nvidia is a great company, but we are pointing out that its valuation is beyond lofty and unjustifiable," he said last month.