Commerzbank economists Dr. Jörg Krämer and Bernd Weidensteiner argue that the AI-fueled augment in investment in US high-tech and IT is significant, but not yet excessive compared to previous booms. They see early signs of faster U.S. productivity, elevated stock valuations and earnings expectations, and warn of potential corrections, but conclude that the AI ​​boom and related stock market strength are likely to persist for now.

Artificial intelligence boom, valuations and bubble risk

“The introduction of artificial intelligence has sparked an investment boom, particularly in the United States. The sheer scale of resources being used increases the risk of a bubble. This could cause stock markets to deteriorate. We have assessed the risks and concluded that the boom is likely to continue for now.”

“Furthermore, while the stock is expensive, its valuation is lower than it was at the height of the dot-com bubble. The price-to-earnings ratio of S&P 500 stocks, based on expected earnings over the next twelve months, is now 20, compared to 25 in early 2000. Therefore, we do not yet believe that the current valuation is a cause for concern.”

“While we don’t expect it to happen in 2026 or 2027, investment booms usually end in busts. What might that look like? Economic history provides a pattern with the dot-com bubble in the second half of the 1990s.”

“Until now, much of this investment has been financed by cash flow; only recently have companies increasingly turned to borrowing. Overall corporate debt has been declining relative to GDP for years. Therefore, the end of the AI ​​boom is unlikely to cause a banking crisis; rather, as in 2001, it would primarily result in falling stock prices.”

(This article was created with the assist of an artificial intelligence tool and has been reviewed by an editor. Find out more.)