Peter Lynch does not like the AI trade; here's why he says 'Know what you own'

Since last year, stock markets around the world saw an increasing frenzy around AI, with hyperscalers increasing their investments in the technology. The increased optimism sparked a sharp rally in the AI stocks, before things began to go down. Analysts soon began sounding the alarm over the massive AI spending and rising debt of the tech giants, questioning if they will actually bear fruit in the future. The worries sparked a sharp selloff in the tech stocks.

In this environment, investors often remember what the legendary investor Peter Lynch had said last year when the AI boom was at its initial stage. Despite the unprecedented market optimism around AI prevailing during the time, Lynch said he has zero AI stocks. “I literally could not pronounce Nvidia until about eight months ago,” he said while speaking at 'The Compound and Friends' podcast with Josh Brown, as reported by CNBC.

In the podcast which was released in October last year, Lynch said he does not invest in AI as he does not understand the technology enough to have an informed opinion on the market’s optimism toward AI. "I am the lowest tech guy ever. I cannot do anything with computers. I just have yellow pads," he said.

What happens when investors invest in what they don't understand

Lynch has consistently advocated that investors must have a proper understanding of what the companies do before investing in them. It is in fact one of the core principles of his popular book 'One Up on Wall Street'. "I have this expression: 'Know what you own'. If you don't understand what you own, you are toast," he said.

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The market veteran quipped that people spend hours researching flights to ensure they get the best price. But when it comes to investing, "they will put $10,000 in some crazy stock they heard on the bus".

Earlier this year, Michael Burry, who is popular for correctly predicting the 2008 housing crisis, wrote on a Substack post that he sees many indicators, both technical and fundamental, lining up for the same conclusion as the Dotcom crash. "1999 went where no market had gone before, and I would say so can this one...It is already there on a number of indicators," he said, arguing that massive venture capital flows, rising AI debt issuance, and extreme market optimism are creating conditions where valuations may detach from economic reality.

What other market veterans feel about AI

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