Recently, economist Torsten Slok warned that the current artificial intelligence (AI) bubble may be more severe than the internet bubble in the late 1990s. Slok, the chief economist at Apollo Global Management, pointed out in a widely circulated report that the valuations of the top ten companies in the S&P 500 index are significantly higher than those in the 1990s.
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Slok mentioned that the price-to-earnings (P/E) ratios of the top ten companies in the S&P 500 index continue to rise, surpassing the records from the 1990s. The P/E ratio is usually considered an indicator of stock prices relative to company earnings. A higher P/E ratio means the stock price is very high. Recent data shows that these companies' P/E ratios keep increasing, while their earnings have not grown in tandem, suggesting that market enthusiasm seems to be moving away from rationality.
Technology giants' enthusiasm for AI continues to drive the market, especially NVIDIA, an AI chip manufacturer, which has shown remarkable performance in the S&P 500 index, followed by Microsoft, Apple, Amazon, Meta, and Google. Although these companies have invested billions of dollars in AI infrastructure, their revenues still cannot match these expenditures, raising concerns about the high valuations in the market.
Similarly, AI critic Ed Zitron compared the current AI boom to the subprime crisis of 2007, which led to the collapse of the U.S. real estate market. The continuous pursuit of AI in Silicon Valley faced challenges at the beginning of this year when a Chinese AI company named DeepSeek demonstrated that its AI chatbot required far less computational power during training than other large language model competitors, triggering a market sell-off exceeding $1 trillion.
Although AI tools like ChatGPT and Google's Gemini received significant attention in 2023, their revenue remains negligible compared to the billions of dollars invested in infrastructure. According to a report by S&P Global Research, the total revenue of the generative AI market is expected to grow rapidly and reach $85 billion by 2029. However, this number still seems insignificant compared to Meta's planned capital expenditure of over $60 billion in 2023. Therefore, tech companies need to prove to investors that the massive AI investments will eventually bring returns and avoid repeating the worst stock market crashes in history.
Key Points:
🌐 The current AI bubble is more severe than the internet bubble in the 1990s.
📈 The price-to-earnings ratios of the top ten companies in the S&P 500 index continue to rise, but their earnings have not kept up.
💸 Although the AI market has great potential, there is a significant gap between current revenue and spending; investors need to remain vigilant.