NYU finance professor Aswath Damodaran, widely known as the “Dean of Valuation,” is warning that the artificial intelligence investment frenzy is dangerously overvalued and heading for a reckoning.
Damodaran argues the current AI boom displays classic signs of what he calls a “Big Market Delusion,” where too many investors assume they will each capture the majority of a vast new market.
He contends that AI companies would collectively need to generate “two, three, four trillion in revenues eventually” to justify the enormous capital currently being poured into Large Language Models.
The professor draws direct comparisons between today’s AI hype cycle and the late 1990s dot-com era, suggesting the eventual correction could prove more damaging than the bust of 2000.
Venture capitalists and private market investors are among the most exposed, according to Damodaran, who believes they face the greatest risk of being left behind when the correction finally arrives.
“As an investor, you’re going to get eaten alive if you go into that space,” Damodaran warned, pointing to the speculative capital flooding into AI infrastructure and model development.
Damodaran has put his own money where his analysis is, completing his full exit from Nvidia (NASDAQ: NVDA) at the end of last year, selling his position in a staggered fashion over four years.
While he acknowledges that Nvidia is a “company that delivers,” he believes the stock is now priced for perfection, leaving virtually no margin of safety for investors entering at current levels.
For AI valuations reaching the $26 trillion range to be justified, Damodaran argues the technology must deliver productivity gains so sweeping that they would require eliminating roughly half of all white-collar jobs globally.
He identifies a more economically stable middle ground, where AI functions as a productivity tool that enhances human workers rather than replacing them outright, preserving both consumer purchasing power and economic stability.
This scenario, while more sustainable for the broader economy, would result in significantly lower headline valuations for AI stocks than the market is currently pricing in.
Damodaran’s warnings arrive at a moment when investor enthusiasm for AI-linked equities remains elevated, making his cautious, valuation-focused perspective a notable counterpoint to prevailing market sentiment.
