The Dean of Valuation Thinks We’ve Hit Peak AI in the Markets

Aswath Damodaran, the NYU finance professor known for his rigorous approach to company valuation, has a clear and unsettling message for investors in the AI space: the market may have already seen its high point for AI hype, and a shakeout is coming. He is not predicting the end of AI development as a technological force. Rather, he argues that stock prices have run far ahead of the underlying business fundamentals, and the correction that started in July 2024 is likely to continue. The most vulnerable players, he says, are not the hyperscale giants but the lesser-known, highly leveraged AI companies that have ridden the wave without the cash flows to survive a downturn.

The Mag Seven Are Protected, but the Smaller Players Are Exposed

Damodaran draws a sharp distinction between the largest AI-related companies and the rest of the field. The Mag Seven—Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla—have invested tens of billions of dollars in AI infrastructure, but they also generate enormous cash flows from their core businesses. That financial cushion means they can weather a correction. In fact, Damodaran suggests they might even benefit from one: a shakeout would decimate smaller competitors, allowing the giants to pick up assets and talent at distressed prices.