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Be it geopolitical tensions in the Middle East, an AI bubble, or something else, concerns around a stock market crash are building again. Therefore, I thought it wise to ask my chatbot friend ChatGPT which stocks could be the most vulnerable if we do see a sharp shift in investor sentiment. When it picked a stock I own, my eyebrows certainly raised!
A surprising pick
It picked Raspberry Pi (LSE:RPI). I have owned the stock for a few months now, seeing it as a great way to get some AI exposure without having to buy large US tech stocks. Before I delve into that more, I want to understand why ChatGPT selected it.
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One point it made was that during market crashes, investors typically first sell their stocks that are perceived as most overvalued. Companies priced for years of future growth tend to see their valuations compress much more sharply than mature businesses paying reliable dividends. ChatGPT believes that’s where Raspberry Pi sits right now.
It also highlighted the significant number of institutional investors with a stake in the company. Even though that’s normally positive, during a panic these same funds often reduce exposure quickly to meet redemptions or lower portfolio risk.
Since Raspberry Pi isn’t as frequently traded as FTSE 100 giants, relatively modest institutional selling can produce disproportionately large price swings.
Why I’m not convinced
Maybe I have some bias as a current shareholder, but I don’t agree with ChatGPT’s assessment. Even if a crash results from investors getting worried about AI valuations, Raspberry Pi is well-grounded. Unlike many tech companies that have rallied on excitement around generative AI, Raspberry Pi’s products solve practical engineering problems.
Further, the products sold are often relatively low-cost components within much larger systems. Therefore, any cutback in client spend wouldn’t have the same impact as cutbacks in more expensive units sold by other related companies.
Yet, the big thing I like about the company is the diversified client base. It isn’t dependent on one large contract nor one end market. It serves DIY hobbyists right through to firms specialising in areas such as industrial automation and robotics. Because it is diversified, any potential hit to revenue from a recession or a similar event that could trigger a crash is likely going to be smaller than people expect.
Looking elsewhere
Don’t get me wrong, any tech growth stock is likely going to suffer during a market crash. Raspberry Pi is no exception. But what I take issue with is ChatGPT believing it’s the most sensitive in the FTSE 250. I think there are a host of other stocks that should be higher up that list than Raspberry Pi.
I believe investors should consider buying the stock on its own merit. But for those who do think a crash is coming, there’s no harm in waiting, and if they prove to be correct, then there could be the opportunity to snap it up at a lower price.
Should you invest £5,000 in Raspberry Pi Plc right now?
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Jon Smith owns shares in Raspberry Pi.
