Some experts warn the AI industry is a bubble at risk of collapse due to inflated valuations. Chief economist Torsten Slok highlighted that the top ten S&P 500 companies are currently more overvalued than prior to the dot-com implosion. A chart reveals increasing P/E ratios over five years, indicating this overvaluation. The rush into AI investments, particularly by major tech firms like Nvidia, Microsoft, and Apple, is fueled by a frenzy despite lagging earnings and infrastructure costs, prompting concerns of market instability.
"The difference between the IT bubble in the 1990s and the AI bubble today is that the top 10 companies in the S&P 500 today are more overvalued than they were in the 1990s," Slok wrote in a note that was widely circulated online.
A chart shows the price to earnings (P/E) ratios of the top ten performing companies in the S&P 500 against the rest of the index. A high P/E ratio, generally speaking, indicates that a stock's price is extremely high relative to its earnings.
Slok is ringing the alarm bells over the apparent market frenzy, driven by tech titans that are heavily invested in the AI industry.
Earnings are still lagging far behind the astronomical spending on building out infrastructure, with some tech leaders already showing early signs of hesitancy, given the massive P/E discrepancy.
Collection
[
|
...
]