With the stock market trading near all-time highs despite a wall of geopolitical and macroeconomic worry, could a crash be just around the corner?
That’s what I asked ChatGPT. And its response wasn’t exactly reassuring.
The AI gave a 40%-50% probability of a market correction, a 20%-30% chance of a deep bear market, and a 10%-15% probability of a full-blown crash with major indices falling more than 35%!
Needless to say, those are some fairly alarming numbers. But here’s the thing: they need to be taken with an enormous pinch of salt.
Why ChatGPT might be wrong
Artificial intelligence tools like ChatGPT are excellent at summarising existing information, but they’re considerably worse at predicting the future.
For every analyst warning of a crash, there’s another pointing to record corporate earnings, resilient consumer spending, and AI-driven productivity gains that could sustain economic growth for years.
In fact, recent earnings from businesses across the UK, US, and Europe have been remarkably strong, suggesting the underlying economy’s considerably more robust than what the doom-and-gloom headlines imply.
That doesn’t mean investors should ignore all the warning signs. Excessive valuations based on unreasonable expectations in growth and addressable market sizes should still spark caution.
But at the same time, there are also plenty of high-quality ‘expensive-looking’ stocks that could be set to continue thriving. And one potential example from my own portfolio is Games Workshop (LSE:GAW).
A business that keeps on delivering
If you haven’t heard of Games Workshop, it’s the UK company behind Warhammer – the world’s most popular tabletop fantasy battle game.
The company designs and sells intricately-detailed plastic miniatures, accompanying rulebooks, and accessories to a fiercely loyal global fanbase. And that loyalty is what’s turned this niche retail business into one of the most profitable and high-growth companies in the entire FTSE 100, delivering record results, year after year.
The most recent half-year results saw core revenues grow 17.3% to £316.1m. Core operating profit surged 28.6% to £126.1m.
At the same time, core gross margins expanded to 69.4% from 67.5% while the company generated £169.4m in cash from operations in just six months. And this impressive performance has seemingly continued, with the group’s latest trading update confirming full-year revenues on track to reach at least £625m with £265m in pre-tax profits.
Not bad for a business that sells premium discretionary products.
