Introduction
The freedom to reason, choose — and make mistakes — is one of the characteristics that sets humanity apart from other living beings. Financial markets are nothing more than the sum of human wills: narratives, fears, hopes, and whims that, rational or not, ultimately determine prices.
Historical Context and Market Behavior
Throughout history, people have convinced themselves that a tulip could be worth more than a house or that a money-losing website could raise $300 million in its Initial Public Offering (IPO). The concept of a “voting machine” was aptly described by Benjamin Graham in his book ‘The Intelligent Investor,’ where daily market movements are driven by sentiment, emotions, speculation, and the popularity of stocks. In the long term, however, a “scale” emerges, indicating that over time, an enterprise’s true value is revealed, and the stock price converges with its fundamentals, such as earnings, assets, and growth potential.
AI-Related Companies’ Rapid Growth
In the past two years, companies associated with Artificial Intelligence (AI) have added more than $5.5 trillion in value. The Nasdaq has doubled its level since 2022, and the forward multiples of the technology sector have returned to levels seen just before the internet bubble.
Comparisons with the 1990s Dot-Com Bubble
- Record valuation against GDP: The S&P 500’s market capitalization exceeds 175% of the US GDP, a record high and significantly higher than the 2000 peak (135%).
- Extreme concentration: The 20 largest companies in the S&P 500 represent 52% of the index, with most linked to AI. This level of concentration hasn’t been seen since 1920.
- Global exposure of savings: US households and foreign investors have the highest equity exposure in US history.
ChatGPT’s Impact and the Paradox of Infinite Computing
Since ChatGPT’s launch in 2022, US stocks have risen by 71%. This surge aligns with the dominant narrative: AI will multiply global productivity, reduce structural costs, and create new oligopolies. However, it also reveals the paradox of infinite computing.
Large tech companies operating massive data centers and providing cloud computing, storage, and networking services on a grand scale are investing more in infrastructure than any previous tech industry. The question is: who will ultimately bear the brunt of this spending cycle?
While AI adoption by businesses is real, monetization remains uneven. The leap to larger models doesn’t guarantee proportional income increases. Moreover, the seemingly “infinite” demand for computing might encounter physical, energy, or financial limitations.
The Balancing Act: Narrative vs. Reality
As Fyodor Dostoevsky once said, “the privilege of talking nonsense is unique to human beings.” This observation serves as both a warning and justification. Humans imagine impossible futures, speaking extraordinary nonsense in the process, but it is this excess of narrative that finances innovations that might never have existed without such exaggeration.
The question for investors isn’t whether AI is overvalued today — it likely is — but if this period will be remembered as a fleeting madness or the beginning of a genuine transformation that justified such narratives.
*Director, Banca Privada UHN Noreste
