Options expert says AI rally ‘unlikely’ a bubble
Options expert says AI rally ‘unlikely’ a bubble
NVDA
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(Updated – March 20, 2024 1:09 PM EDT)
Analysts at Winhall Risk Analytics and contributors to OptionMetrics, told Investing.com this week that they feel the rally in artificial intelligence stocks is “unlikely” a bubble.
“From an options point of view, it seems unlikely, currently,” they declared. “Option metrics that would indicate a bubble forming — the trend of implied volatility, out-of-the-money to at-the-money strike skew, and the volatility risk premium — are not indicating excessive investor exuberance.”
They feel they are not acting abnormally or excessively, but instead, as one would expect, in a steep bull market. When assessing previous bubbles, it was noted that GameStop witnessed significant increases in these metrics.
“So far, this hasn’t occurred in AI stocks, specifically NVIDIA (NVDA),” they added. “It is important to understand the difference between a bubble (GameStop in 2021) and an extended, consistent, and aggressive bull market (Nvidia (NASDAQ:NVDA) and other AI stocks). True bubbles are rare and usually relatively short-lived.”
In their research note posted on OptionMetrics last week, they explained they had assessed the trend of implied volatility, skew, and the risk premium to determine whether Nvidia, given its more than 80% year-to-date performance, is in some stage of bubble formation. They concluded that all three metrics indicate that the stock is most likely not in a bubble but is in an extended, consistent, and aggressive bull market.
“Of course, NVDA may eventually develop into a bubble, but currently, based on the above analysis, it is probably not,” they concluded.
