The AI hype feels like an echo from past bubbles The AI hype feels like an echo from past bubbles The AI hype feels like an echo from past bubbles

The AI hype feels like an echo from past bubbles

Peter Garnry

Head of Equity Strategy

Summary:  The vast majority of growth theme baskets have done bad over the past week while semiconductor and AI related stocks have marched on pulling the market out of what would have been a dismal weekly performance. Excitement and hype over AI have pushed semiconductor stocks to their highest forward equity valuations since January 2010 and Nvidia is now valued at levels where it can almost only disappoint investors in terms of future returns.

The key points in this equity note:

  • Most of the equity market strength the past week has come from AI related stocks while the majority of growth equity themes are actually down highlighting the shallow equity market.

  • Valuation of semiconductor stocks has risen to the highest level since January 2010 and Nvidia’s valuation relative to expected revenue has now risen to levels that should alarm investors.

  • The key risk for AI related stocks is now that expectations are set too high in which these stocks will only disappoint as past exuberance stocks have done.

Underneath the AI surface there is weakness in equities

When we observe global equities over the past week they were slightly down with the semiconductor theme basket standing out rallying 6.7% as the AI hype gathered momentum with Nvidia’s CEO talking about a new era lasting 10 years. However, if we look outside the segments related to AI then the vast majority of growth pockets in the global equity market were down last week with baskets such as Payments, Luxury, Energy storage, and NextGen medicine leading the declines.

A concerning development for equity markets is the concentration of positive contributors this year to market performance and zooming in further it is clear that AI related stocks have done the most part of the heavy-lifting. However, these dynamics are not without consequences. This frenzy to “get into AI” has pushed the semiconductor industry to its highest valuation ever measured on 12-month EV/EBITDA which is already factoring in expectations of EBITDA over the next year. At 18.7x the semiconductor industry is now valued 72% above the global equity market raising expectations to levels that might dearly disappoint investors over the coming years.

Nvidia is up in pre-market zooming in on $1trn market value

Nvidia, the leading manufacturer of GPUs used in AI developments and researching, is the frontrunner in the current AI hype phase and is up 3% in pre-market trading taking the market value above $1trn for the first time in its history. As we have written about recently Nvidia’s valuation has reached levels which are difficult to accept unless the growth trajectory in the years to come will be anything we have ever seen before. Of course there is always room for a new unique trajectory in life and Nvidia could be this outlier, but the probability of that happening based on past experience is very low. At 22 times 12-month forward revenue the expectations for Nvidia are incredibly high and the stock is in the top decile on 12-month forward EV/Sales in the Russell 1000 Index.

If one backtests the 12-month forward EV/Sales factor over the past 25 years then the top decile bucket (those stocks with the highest EV/Sales ratio) had an annualized return of 4% while the lowest decline bucket had an annualized return of 16.7%. In other words, the boring stocks tended to outperform their expectations while the most exciting stocks tended to disappoint investors. This historical fact is an important decision variable for investors considering rushing into Nvidia shares.

In many ways do the current AI bubble feel like an echo from the dot-com bubble and in recent time the crypto and blockchain bubble. There is a group of influencers on social media there is pushing AI related sensationalism in huge quantities to take advantage of the “next thing” and it distorts people’s expectations of the future creating bubbles in public equity markets. Remember the days when we were promised blockchain and self-driving cars technologies would revolutionize financial markets and allow to sip your cappuccino while the car took you to work?
Nvidia share price | Source: Bloomberg

Over the past week we have written several equity notes touching on the topic of Nvidia, AI, risks, opportunities, thew fight between Google and Microsoft, and the galloping demand of GPUs.


Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.