Remember when everyone and their grandmother was buying AI stocks because “artificial intelligence is the future”? Well, Goldman Sachs analyst Ryan Hammond just walked into the party and turned on the lights – and let’s just say, things look a little different in the harsh light of reality.
Here’s the tea: AI stocks have been stumbling around like they’ve had one too many at the hype bar. The Morningstar Global Artificial Intelligence Select Index is down about 1% over the past month, which might not sound like much until you realize we’re talking about stocks that were supposed to be printing money faster than ChatGPT prints essays.
The Valuation Reality Check
Let’s talk numbers, because they’re honestly wild. Nvidia – you know, the chip company that became everyone’s AI darling – is trading at 47 times earnings. That’s like paying $47 for every dollar the company actually makes. But wait, it gets better (or worse, depending on how you look at it).
Palantir is sitting pretty at a P/E ratio of 501. Five hundred and one! That’s not a typo. CrowdStrike isn’t far behind at 401 times earnings. To put this in perspective, that’s like buying a house for $500,000 that only generates $1,000 in annual rent. Would you do that? Probably not.
The “Phase 3” Warning
Hammond dropped some analyst jargon about “Phase 3” of AI, but here’s what he’s really saying: the party’s about to get more selective. Unlike the current free-for-all where anything with “AI” in its name shoots to the moon, Phase 3 will actually separate the companies making real money from those just riding the wave.
“There will likely be winners and losers,” Hammond noted. Translation: some of these companies are about to get a reality check that’ll make a cold shower feel warm.
The Silver Lining (Sort Of)
Before you panic-sell everything, Hammond did throw us a bone. He doesn’t think we’re in full dotcom bubble territory – yet. The current situation is “modestly above historical averages but well below the levels reached in the Tech Bubble.” So we’re not completely off the rails, just… enthusiastically optimistic.
What This Means for Your Portfolio
If you’re holding AI stocks, this isn’t necessarily a “sell everything and hide under your bed” moment. But it might be time to actually look at what these companies do beyond having “AI” in their pitch deck.
The smart money is starting to ask for proof – actual revenue, real earnings, tangible results. Revolutionary technology is great, but at some point, it needs to pay the bills.
So maybe, just maybe, it’s time to be a little more picky about which AI stocks deserve your hard-earned cash. After all, not every company that mentions machine learning is the next Google.