Chatter about an impending stock market crash has risen dramatically as many shares march higher. Both the S&P 500 and FTSE 100 are up 25%+ since April lows. The Nasdaq Composite has surged more than 50%!
One thing adding uncertainty is artificial intelligence (AI). Some prominent investors think AI-related stocks are in bubble territory. And with the Magnificent Seven tech stocks making up about 37% of the S&P 500, the ingredients for a huge market crash are in place.
Should investors be worried? Here’s my take.
AI infrastructure investments
At the risk of inviting egg on my face, I don’t think a huge crash is imminent. Tech stocks are being propelled higher right now by large-scale investment in data centres and AI infrastructure, combined with the promise of AI-driven efficiency gains for many businesses.
Were capital expenditures suddenly to slow, the stock market could quickly suffer a meltdown. Instead though, the tech giants just signalled in their (strong) Q3 earnings reports that they intend to keep investing in AI because the demand is very high.
Amazon CEO Andy Jassy, for example, said: “We continue to see strong demand in AI and core infrastructure, and we’ve been focused on accelerating capacity — adding more than 3.8 gigawatts in the past 12 months.”
Moreover, most market crashes are not triggered by the risks everyone’s long been talking about (AI, in this case). Instead, they’re caused by shocks that are unexpected (the global pandemic) or underappreciated (President Trump’s reciprocal tariffs bombshell in April).
Before 2007/08, few truly grasped the systemic risks in mortgage derivatives. Those that did (like Michael Burry of The Big Short fame) made an absolute fortune.
Of course, the dot-com bubble was visible for years. But AI adoption has been far quicker than the internet, and the valuations of AI enablers like Nvidia are being driven by massive infrastructure demand for chips and data centres. Not a hypothetical future market.
Under-the-radar AI play
Two stocks I’ve been really bullish on over the past two years — because both looked really undervalued — have been Alphabet and Taiwan Semi (TSMC).
The latter makes most of the advanced AI chips today while Alphabet’s Google Cloud unit just enjoyed tremendous Q3 growth of 34%.
Over the past two years, shares of TSMC and Alphabet are up 200% and 114%, respectively. So they’re no longer screaming bargains to me.
Perhaps then it’s time to consider an under-the-radar UK tech share like Craneware (LSE:CRW). It provides software solutions to US hospitals and health systems, helping them manage their finances and ensure compliance.
Revenue growth has been strong for years, rising from $71.5m in FY20 to $206m in FY25 (which ended in June). Earnings growth looks solid moving forward.
Now, one issue here is that Craneware faces quite a lot of competition in the healthcare software space. And with budgets under pressure, securing new contracts might prove more challenging.
However, broker Shore Capital flagged Craneware earlier this year as a stock set to benefit from the AI-revolution. It has lots of data — fuel for AI — flowing through its cloud-based Trisus platform.
Currently trading at a reasonable 21 times forward earnings, the stock might be worth checking out as an under-the-radar AI play.
