The S&P\/ASX 200 Index (ASX: XJO) is down 1.37% on Friday at 8,435.6 points, which is 7.5% off the record high set last month. <\/p>\n
Despite the drop, Blackwattle Investment Partners says the ASX 200 is still expensive. <\/p>\n
The ASX 200<\/a> is trading on a 21x forward price-to-earnings (P\/E) ratio<\/a> compared to its 10-year average of about 16x.<\/p>\n Excitement over the artificial intelligence (AI)<\/a> revolution has certainly helped drive up global markets this year, including the ASX 200. <\/p>\n Are we headed for bubble trouble? <\/p>\n Is AI a bubble? <\/p>\n At the time of writing, the market is down 2.3% this week due to worldwide concern over high technology valuations and continuing economic uncertainty, particularly in the US, where speculation on the next move with interest rates changes daily. <\/p>\n This uncertainty hit ASX 200 tech stocks hard this week, with the sector down 3.62%. Financials are also down 2.85% so far this week. <\/p>\n Some investors feel worried that the hype around AI is creating a bubble. <\/p>\n US tech stock valuations remain very high, and just a few companies comprise a very large portion of the S&P 500 Index\u00a0(SP: .INX). <\/p>\n Investors are worried about how much money the big tech giants are spending on AI, and whether this investment will truly bear fruit. <\/p>\n Outside the tech sector, many businesses are investing in AI to raise productivity, but we’re yet to see this translate to earnings growth.<\/p>\n It’s simply too early in the AI revolution for productivity gains in non-tech businesses to show up in their financials.<\/p>\n Many analysts and investors have acute memories of the dot-com bust in the early 2000s. <\/p>\n The Nasdaq Composite Index\u00a0(NASDAQ: .IXIC) crumbled 60% over two years after hitting its peak in March 2000.<\/p>\n That is a shivers-up-your-spine market collapse that no investor wants to risk going through again. <\/p>\n However, many analysts say things with AI are very different to the market dynamics that produced the dot-com crash. <\/p>\n They point out that the major US tech companies leading the AI revolution are well-established, well-run businesses, whereas many company failures during the dot-com bust were start-ups that did not effectively harness the internet to grow profitable businesses.<\/p>\n The US tech giants also have substantial cash reserves, which means they do not have to rely on debt to fund their massive AI investments.<\/p>\n The world’s largest investment asset manager, BlackRock says:<\/p>\n In our view, parallels to the dot-com bubble fall short: tech earnings quality and capital efficiency are stronger today\u2026 <\/p>\n And unlike the dot-com era, robust earnings support today’s mega-cap valuations.<\/p>\n This week, the latest quarterly report from AI chip giant Nvidia Corp (NASDAQ: NVDA<\/a>) was seen as a litmus test for how the AI revolution is tracking.<\/p>\n A positive report would reassure the market, while a disappointing one would enhance fears of a bubble. <\/p>\n Here’s what happened. <\/p>\n Nvidia delivers record revenue <\/p>\n