AI’s Valuation Problem Reaches a "Mini Panic Moment"

It’s no coincidence that chatter about an AI bubble is growing louder just as bullish calls are becoming more confident.

This week’s tech pullback was a brutal, white-knuckle moment for investors.  

Tech valuations continue to rise alongside a gnawing feeling that things are about to crumble. Fear-of-missing-out (FOMO) trading goes a long way toward explaining how tech’s triumphant forward march can also seem so perilous, even fragile, Hamza Shaban reported for Yahoo Finance.

But a more charitable reading views so much money chasing so many unproven AI plans as a rational approach to the prospects, however remote, of a huge payoff.

Tech valuations continue to rise alongside a gnawing feeling that things are about to crumble. Fear-of-missing-out (FOMO) trading goes a long way toward explaining how tech’s triumphant forward march can also seem so perilous, even fragile, Hamza Shaban reported for Yahoo Finance.

But a more charitable reading views so much money chasing so many unproven AI plans as a rational approach to the prospects, however remote, of a huge payoff.

Call it a “rational bubble.” If the potential rewards are so large, it makes sense for the market to adopt a venture capital approach to AI investing — placing multiple bets and risking more than feels comfortable.

A sole winner — or a handful of winning investments — can more than offset the losses.

In the meantime, though, things can get ugly, and they have. As Wedbush analyst Dan Ives wrote in a note to clients, this week’s tech pullback was a brutal, white-knuckle moment for investors.

What started as pressure against Palantir last week — even after the company posted impressive results — snowballed into more AI bubble talk, combining worries over Nvidia’s China revenues, OpenAI’s perceived hubris, and The Big Short investor Michael Burry betting against AI darlings.