The explosive growth of Artificial Intelligence (AI) technology has propelled the stock prices of key players like NVIDIA to unprecedented heights. This unstoppable ascent has simultaneously fueled a powerful debate: Is the current AI frenzy an unsustainable bubble?
Some market experts describe the current state as the 'Wobbling Market.' This term signifies an unstable condition where excessive investor expectations inflate stock prices. However, the inherent uncertainty regarding actual profits and realized earnings shakes the market severely. Simply put, stock valuations are precariously dancing between "overvaluation" and "instability."
Current AI stocks already reflect massive future growth. Consequently, even minor negative news can trigger significant volatility—the signature 'wobbling' effect. Understanding whether this market is repeating history or forging a new future requires a sober look at valuation metrics.
π Three Metrics to Gauge the Bubble: PER, PSR, and PPR
To settle the intense debate on market overvaluation, investors must coldly compare key investment indicators that measure corporate value. Evaluating future industries like AI requires not just traditional metrics but also new analytical perspectives.
1. The Traditional Alarm Bell: PER (Price to Earnings Ratio)
The PER is a classic measure of valuation, showing how many times a company's share price trades compared to its earnings.
| Metric | Definition | Current AI Stocks | Dot-com Bubble Comparison |
| PER | Share Price $\div$ Earnings Per Share (EPS) | Often above 30x (Overvalued by traditional standards) | Averaged over 50x (Excessive overvaluation) |
Leading AI companies currently record PERs exceeding 30x. This suggests that the stock price is already considerably high compared to the company's current profitability. Judging by this metric alone, the potential for a bubble remains high. PER acts as a critical warning against ignoring present-day financial reality.
2. The Forward-Looking Indicator: PSR (Price to Sales Ratio)
The PSR compares a company's market capitalization against its total revenue.
| Metric | Definition | Current AI Stocks | Dot-com Bubble Comparison |
| PSR | Market Cap $\div$ Total Revenue | Valuation anticipates explosive future revenue growth | High valuation was difficult to justify due to poor actual sales |
The AI industry is still in its early growth phase. Therefore, the potential for future market expansion and revenue growth holds far greater importance than immediate net income (PER). Investors accept a high PSR because they anticipate a dramatic increase in AI chip demand and licensing revenue, which will materialize into huge sales figures soon.
3. Measuring True Value: PPR (Price to Intangible Assets Ratio)
The true competitive edge of an AI company lies in its unseen intellectual property. The PPR attempts to quantify this.
| Metric | Definition | Current AI Stocks | Dot-com Bubble Comparison |
| PPR | Market Cap $\div$ Intangible Asset Value | Reflects value of core AI algorithms, data, and patents | Intangible assets lacked clear practical value and commercialization |
PPR shows how the market values the company's intangible assets, such as proprietary AI algorithms, vast datasets, and exclusive patents. A high PPR for AI firms suggests the market has strong confidence in their Economic Moat—the sustainable competitive advantage created by their unique technology.
Caution: Recent concerns over Vendor Financing (circular transactions) in some AI companies raise questions about the reliability of their reported revenue and, consequently, their PSR and PPR valuations. Investors must scrutinize these figures carefully.
Schatten der Vergangenheit: AI vs. the Dot-com Bubble
The AI bubble theory inevitably invokes the specter of the Dot-com Bubble that collapsed in the early 2000s. However, critical differences exist between the two phenomena.
The Dot-com Bubble: A Sandcastle Built on Hype
Growth Stage: Dot-com companies emerged when the internet infrastructure was only beginning to be deployed widely.
Profit Base: They suffered from extremely fragile revenue models and an absence of a solid profit base. Most PERs exceeded 50x, but revenue was often so negligible that PSR was practically meaningless.
Collapse: The bubble resulted from vague expectations a
bout an 'Internet Revolution.' When reality hit and profits failed to materialize, companies without a robust profit base collapsed rapidly.
The AI Surge: Solid Foundations and Real Demand
Technical Foundation: AI builds upon a robust technical infrastructure, including high-speed cloud computing, massive data centers, and advanced GPUs.
Tangible Demand: The hardware required to run AI systems, such as NVIDIA's GPUs, is already generating substantial, real-world revenue. Intense competition among governments and corporations to adopt AI underpins this demand.
Key Difference: The Dot-com Bubble collapsed after the internet infrastructure was largely built. AI, conversely, is widely believed to be just entering its main industrial growth phase, where adoption and revenue will accelerate dramatically.
π§ Investor Insight: Adopting a Balanced View
The tension between the 'bubble theory' and the 'innovation theory' confirms the market is currently in the volatile, early stage of a Wobbling Market.
Heed the PER Warning: Never forget that current stock prices may already have factored in several years of future earnings. This dictates caution.
Recognize the PSR/PPR Opportunity: Acknowledge that AI's monopolistic technology and massive potential market size justify the high valuations expressed through PSR and PPR.
Smart Strategy: To avoid repeating the dot-com era mistake, investors must look beyond mere thematic hype. They need to analyze a company's genuine technological innovation and its capability for sustainable cash generation. This is the moment to be cautious of the bubble yet vigilant not to miss out on truly transformative innovators.
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Thanks a lot