How to hedge a bubble, AI edition

Subscribe to enjoy similar stories. On February 8th sports fans watching the Super Bowl, an American-football game, will be treated to an advert for Claude, an artificial-intelligence chatbot. Those viewers who are investors with long memories might feel an unsettling sense of déjà vu.

The Super Bowl held in 2000 passed into market folklore as the epitome of internet-stock mania: no fewer than 17 “dotcom" firms paid millions of dollars each for 30-second advertising slots. Within weeks share prices had fallen into a brutal bear market. Back in the present investors’ confidence in today’s emerging technology—AI—has already begun to wobble, just as companies prepare to spend jaw-dropping amounts of money to develop it.

Over the past fortnight Alphabet, Amazon, Meta and Microsoft have said they will spend a combined $660bn on AI in the coming year. Investors who a year ago might have cheered such plans are getting cold feet. Each firm’s stock price has fallen since its announcement.

Meta’s shot up but then tumbled below where it had been. Microsoft’s is down by 18%. It is no wonder that markets feel jittery.

Everyone knows that shares are expensive—especially in America, but increasingly elsewhere, too. When stock prices are high relative to underlying earnings, expected returns are low and shareholders have more to lose from a crash. The trouble is knowing which other assets might offer refuge.

The price of gold, investors’ time-honoured safe haven, has swung wildly in recent weeks. In recent days so has that of bitcoin, a digital pretender. Just as investors are searching for ways to hedge their equity risk, hedging opportunities seem few and far between.