In a recent interview with Quartz, Deepak Puri, Chief Investment Officer of Deutsche Bank Private Bank, provided insights into the current state of the AI market and addressed concerns about a possible bubble. Puri acknowledged the significant growth of AI in the past year but stopped short of labeling it a bubble.

Puri emphasized that AI as a secular theme is poised to stay, thanks to its potential impact on productivity. He highlighted the noticeable influx of liquidity in the markets, with investors increasingly placing their funds in secular themes like AI and the obesity drug GLP. However, he noted that the market has started to differentiate between stocks within the technology sector, particularly the Mag 7.

Referring to the earnings numbers from the fourth quarter, Puri pointed out that while some of the Mag 7 stocks, like Nvidia, have shown strong performance, others have struggled to gain traction. He predicted that 2024 might bring a differentiation within the Mag 7, where certain names will outperform the rest. Puri suggested that active management and diversification could be more beneficial this year compared to investing solely in exchange-traded funds (ETFs).

The conversation also touched on the need for a new acronym to replace the Mag 7 and the market's affinity for branding. Puri expressed his preference for broader market exposure instead of focusing on one particular theme or industry. He emphasized the importance of considering correlations between stocks, as the performance of one company can influence others in the same sector.

Discussing the current market conditions, Puri acknowledged the recent rally in Nvidia's stock and its impact on the overall market. He cautioned against excessive optimism and suggested that investors should prioritize risk management. Puri predicted that there might be better entry points into the tech sector later in the year, rather than attempting to enter at the peak.

Addressing concerns about an AI bubble, Puri cited the PEG ratio, which compares price-to-earnings ratio (PE) to earnings growth. He emphasized that the PEG ratio of the tech sector is actually lower than that of the broader S&P, indicating that the tech sector might not be in a bubble. He also noted that the current PE multiple of the S&P, although higher than previous years, does not suggest a bubble. Puri highlighted the difference between this rally and the dot-com bubble era, mentioning the strong earnings momentum supporting the current price increases.

Puri concluded the interview by emphasizing the importance of taking a comprehensive approach to investing and considering the broader market dynamics. He emphasized the need to diversify and evaluate opportunities in sectors outside of the Mag 7, such as healthcare and industrial materials.

Overall, Puri's insights shed light on the AI market, potential risks, and strategies for navigating the current market environment. Investors are advised to approach the market with caution, considering risk management and the long-term potential of various sectors.