I thought it was cheap... AI Stocks, 'Déjà Vu' of Dot-Com Bubble Burst

▲ Artificial Intelligence (AI), US Stocks, Dot-Com Bubble/AI Generated Image

Leading Artificial Intelligence (AI) stocks have surged, yet their valuation burden has actually decreased. Market research firms warned that this trend resembles the dot-com bubble burst.

According to economic media outlet Business Insider on June 19 (local time), Tom Essaye, founder of Sevens Report Research, analyzed that the low valuation of AI stocks could be a warning sign rather than a buying opportunity. He suggested that investors might be starting to doubt the sustainability of the data center investment craze.

Essaye explained that the low forward price-to-earnings (P/E) ratio of growth stocks indicates a distrust in future performance. The forward P/E ratio for the S&P 500 index is 21.5x. In contrast, NVIDIA (NVDA) has risen 44% in the last 12 months, but its forward P/E ratio is presented as 21x.

Micron Technology (MU) surged 770% in the last 12 months, with a forward P/E ratio of 10x. Broadcom (AVGO) rose 51%, with a forward P/E ratio of 24x. SanDisk (SNDK) skyrocketed 4,490%, but its forward P/E ratio remained at 14x.

Essaye suggested that if the effects of AI adoption fall short of expectations, investment reductions could lead to order cancellations. He cited Alphabet (GOOGL)'s cancellation of 10 data center constructions due to cost burdens and low profitability as an example. This, he explained, could simultaneously shake the demand for chips, networking, memory, and processing units.

The recent stock performance of Oracle (ORCL) was also mentioned as an example showing investor anxiety. Oracle's stock price has fallen by approximately 25% since June 1. Essaye pointed out that during the dot-com bubble, internet usage increased, but infrastructure development halted when the pace of monetization fell short of expectations. He stated, “This is exactly how the dot-com bubble burst.”

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