The AI Boom Is Headed For A Reckoning — ft. Aswath Damodaran

In this episode of Prof G Markets, NYU Stern finance professor Aswath Damodaran provides a quarterly market update during a live stream. He assesses the S&P 500's resilience amid geopolitical tensions, AI-driven valuations, and earnings concentration, while addressing risks like the Iran conflict and potential AI disappointments. Discussion covers specific companies, sectors, and audience questions.

Market Resilience Amid Shocks

Markets have shown unusual stability, with the S&P 500 up nearly 8% year-to-date despite forward P/E compression and external pressures. Damodaran notes that repeated shocks—from the Iran conflict to rising gas prices (up 30%, now $4.50-$5 in parts of the U.S.)—have not derailed performance as they might have decades ago. He tracks the equity risk premium (a "temperature gauge" for market risk pricing) and finds it measured even at March's crisis peak. Earnings forecasts for the S&P 500 remain higher for next year and beyond, slightly lower this year, suggesting analysts and markets expect the economy to absorb $4.50-$5 gas without catastrophe, unless prices spike further. Markets ultimately respond to earnings impacts, not crises directly, and so far, no major damage appears in projections.