Remember when everyone and their grandmother was buying AI stocks because “artificial intelligence is the future”? Well, Goldman Sachs just walked into the party with a reality check, and honestly, it might be exactly what we needed.
Last week, Goldman analyst Ryan Hammond basically said what many of us were thinking but were too polite to mention: maybe, just maybe, we’ve gotten a little carried away with AI stock valuations. And by “a little,” I mean some of these companies are trading at prices that would make even a crypto bro blush.
The Numbers Don’t Lie (Even When We Want Them To)
Let’s talk about the elephant in the room – or should I say, the robot in the room? Nvidia, the poster child of the AI boom, is trading at 47 times earnings. That’s like paying $47 for a sandwich because someone told you it might cure world hunger. Meanwhile, Palantir is sitting pretty at a P/E ratio of 501. Five hundred and one! At that point, you’re not buying a stock; you’re buying a very expensive lottery ticket.
And don’t get me started on CrowdStrike with its 401 P/E ratio. These numbers are so high they’re practically in orbit with Elon’s satellites.
Welcome to Phase 3: Where Dreams Meet Reality
Hammond dropped another truth bomb about what he calls “Phase 3” of AI investing. Unlike the current free-for-all where anything with “AI” in its name shoots to the moon, Phase 3 is going to be more like musical chairs – and not everyone gets a seat.
“There will likely be winners and losers within Phase 3,” Hammond noted. Translation: the market is about to get pickier than a food critic at a gas station hot dog stand. Companies will actually need to show they can make money from AI, not just talk about it at conferences.
But Wait, It’s Not All Doom and Gloom
Before you start panic-selling everything in your portfolio, Hammond made sure to clarify that we’re not looking at a repeat of the dot-com bubble. Current valuations are “modestly above historical averages but remain well below the levels reached in the Tech Bubble.” So we’re more “mildly overexcited” than “completely delusional.”
The real kicker? AI capital expenditures might have peaked for this cycle. Companies have been throwing money at AI like it’s confetti at a New Year’s party, but that spending spree might be winding down.
The Bottom Line
Look, AI isn’t going anywhere – it’s still transforming everything from how we work to how we accidentally order 47 tubes of toothpaste on Amazon. But maybe it’s time to be a bit more selective about which AI stocks deserve our hard-earned cash.
Instead of buying every stock with “artificial intelligence” in its business description, maybe we should actually look at things like revenue, earnings, and whether the company has a real plan beyond “AI will save us all.”
Sometimes the best investment advice comes disguised as a warning. Thanks for keeping us honest, Goldman.