Key insights
- The post draws a parallel between the dotcom bubble and the current AI hype, suggesting that companies pivoting to AI may be receiving inflated valuations. It cautions that traditional businesses with tangential AI exposure might be overvalued based on AI-related multiples, potentially leading to a market correction if AI expectations are not met. This could negatively impact US equities, particularly in the tech sector.
As I start to see companies pivot towards AI strategies, it reminds me of a chapter I read a while back in A Random Walk Down Wall Street.
The author talks about how during the dotcom bubble a traditional company could just mention a web strategy or put .com at the end of their name and suddenly their entire revenue stream (even the parts completely unrelated to web) were being measured by a much more generous P/E standard or revenue multiple. Toto as an example still has a large part of their revenue generated from their traditional business, but a 25 P/E on that would look cheap nowadays because of this mentioned pivot.
Not trying to give an opinion one way or another but just wanted to share.