"This isn't the 'grandpa-era' stock market…" Scoffs at AI bubble talk

BlackRock CIO "Valuations were 85% higher during the dot-com bubble"

While concerns about a stock-price bubble in artificial intelligence (AI) companies have emerged in parts of the global market, there are rebuttals on the other side. During the 2000s dot-com bubble, most companies were unprofitable and stock prices rose on expectations, but now major tech companies are integrating AI into their services or adopting it anew and generating profits, the argument goes.

On the 12th, according to the financial investment industry, Tony DeSpirito, Global Fundamental Equity Chief Investment Officer (CIO) at the world's largest asset manager BlackRock, wrote on the firm's website the previous day that "he does not view technology and AI stock prices as being in a 'bubble'" and asserted, "It is not 2000 now." He said, "During the dot-com bubble, companies with soaring stock prices had poor profitability and their stock prices ultimately collapsed, but that is not the case now."

He said, "Comparing the top 25 technology companies by market capitalization in the U.S. market from the dot-com bubble year 2000 and this year, the valuations of companies in 2000 were almost 85% higher than now." He explained this was based on comparing the number of top 25 market-cap stocks in the Russell 1000 index that had forward price-to-earnings ratios (PER) of 25 times or more. Even if tech stocks may look expensive now, the bubble of the dot-com era was on another level, he said.

He added, "Today's market is different from our grandparents' era," and said, "The S&P500 today is led by large growth stocks, which ultimately means the index's price-to-earnings ratio will be higher." He went on to say, "Most M7 stocks are at reasonable price levels relative to strong earnings prospects." He did not separately explain which stocks had reached 'irrational' price levels.

DeSpirito said, "BlackRock still views technology stocks as an area of opportunity," adding, "AI can bring unprecedented innovation across the economy, so applying past standards for valuation is not very meaningful." He advised, "Examine the entire AI stack and evaluate AI use cases to identify alpha opportunities."

Reporter Seon Han-gyeol always@hankyung.com