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8h ago

AI Stocks Exceed Dot-Com Valuations as Experts Warn of 25% Bubble Risk

Analysis shows the top ten AI stocks carry forward P/E ratios above the dot-com peak, with UBS forecasting a one-in-four chance of a market bubble by 2026.

Torsten Sløk, chief economist of Apollo Management, during the Market Forum: FX in Focus event in New York, US, on Thursday, Sept. 7, 2023.
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Overview

  • Torsten Sløk’s analysis finds the S&P 500’s leading AI firms trading at a 12-month forward P/E of about 25, surpassing late-1990s dot-com levels.
  • UBS strategists peg the probability of a stock market bubble at 25% by end-2026, noting that anticipated Federal Reserve rate cuts could fuel speculative excess.
  • A narrow rally driven by ten mega-cap AI companies accounts for most of the S&P 500’s gains while the other 490 constituents show little movement.
  • Alibaba Group Chair Joe Tsai and tech executive Tom Siebel have joined warnings that U.S. AI equities are in bubble territory.
  • Analysts caution that if corporate earnings fail to justify current valuations, the market could face a rapid and disorderly correction without a clear trigger.