AI Valuations

Stocks sold off on AI valuation concerns, led by Palantir. Democrats saw election success in NY, NJ, and VA. McDonald’s earnings missed expectations, while Cava cut its forecast. Layoffs are sweeping across companies, with some questioning if it’s truly AI-driven or “AI-washing.” Netflix’s “KPop Demon Hunters” boosted the K-pop industry significantly. Despite Meta’s investment, Scale AI’s CFO confirms the company’s business is still growing.

Ark Invest CEO Cathie Wood, at Saudi Arabia’s FII, addressed concerns about an AI bubble. While not predicting a full bubble, she anticipates a potential “reality check” for AI valuations as interest rates shift. She believes algorithm-driven trading could trigger a market correction as rates rise. Wood argues AI’s long-term potential outweighs these short-term risks, seeing enterprise AI adoption as a gradual process requiring organizational restructuring. Her view contrasts with institutions like the IMF, which have warned of a potential AI bubble.

Thoma Bravo’s Orlando Bravo warns of an AI valuation bubble, drawing parallels to the dot-com era. He questions high valuations relative to current revenue, citing examples like OpenAI and Palantir. While acknowledging AI’s potential, Bravo emphasizes realistic cash flow projections. He notes the presence of established companies with strong balance sheets differentiates this era from the dot-com bubble, but their strategic investments may create market distortions. He advises investors to exercise caution and due diligence.