\n\t\t\t\t
![\"Why](\"https:\/\/www.europesays.com\/ie\/wp-content\/uploads\/2025\/10\/nvidia-gpu.jpg\")
\t\t\t<\/a><\/p>\nA great reckoning is surely coming, where AI valuations get shaken out. A majority (54%) of Wall Street fund managers believe AI shares are already overvalued, according to a Bank of America survey conducted in October 2025. That\u2019s a record level, and a big increase from just two months ago.<\/p>\n
The reason for those once sanguine investors to change their view is plain: AI stock valuations have gone up madly \u2014 even very recently. Nvidia now boasts a three-year return of 1,500%<\/a>, for example. The next chart shows a couple of the strong performers.\u00a0<\/p>\n The rise in Alphabet\u2019s share price is not based on earnings the company is locking away, but on hopes and dreams for future earnings. The ratio of stock price to earnings has risen to 26, which is not as high as Nvidia\u2019s (53) but higher than the old rules of thumb that say a fair value is in the 10-20 range. (Special shout-out here to the price-to-earnings ratio of Tesla: 257.) Suffice to say, the US market is full of optimism, froth and greed right now.<\/p>\n \tSmarter business news. Straight to your inbox.<\/p>\n \n For startup founders, small businesses and leaders. Build sharper instincts and better strategy by learning from Australia\u2019s smartest business minds. Sign up for free. <\/p>\n By continuing, you agree to our Terms & Conditions<\/a> and Privacy Policy<\/a>.<\/p>\n What is AI? At this point, it is mostly just software that makes pictures or figures out what word should come next. Very novel software that performs very well at that task, even in complex situations, and with the prospect of expanding into many more problem-solving domains. But still, that\u2019s mostly what is concrete for now.<\/p>\n \n\t\t\tRelated Article Block Placeholder<\/p>\n \t\t\t\tArticle ID: 325300\n\t\t<\/p>\n \t\t\t\t\t\t\t If it all comes crumbling down, the impact on the wealth of Americans with big stock bets will be huge. America\u2019s market is highly concentrated.<\/p>\n \u201cUS equity valuations appear stretched relative to fundamentals, on the basis of staff estimates, but current overvaluation is still below historical peaks, for example, during the dot-com bubble. Concentration risk, however, has risen to historically high levels, with a narrow group of IT- and AI-related stocks predominantly driving the S&P 500,\u201d the IMF warned in its\u00a0Global Financial Stability Report\u00a0this week.<\/p>\n \u201cThe possibility of mega-cap stocks failing to generate expected returns to justify current lofty equity valuations could trigger deterioration in investor sentiment and make the stocks susceptible to sudden sharp correction.\u201d<\/p>\n The scale of such a crash will also affect the real economy \u2014 a lot of jobs are in these big tech firms, or in serving them by building big data centres, etc. And when you get a market crash with a real economy impact on the side, that\u2019s when a crash builds on itself, drains the confidence from the system, and the capacity of government to respond is strained.\u00a0<\/p>\n I should say this: I don\u2019t think it will come crumbling down yet. The pace of improvement of AI is still very rapid, and that is enough to stretch out those hopes and dreams for many months yet, perhaps even several years. Not to mention, a few minor corrections could appear before any true shake-out.<\/p>\n But what of Australia? We basically have no listed AI stocks. The top performers in our stock market remain simple creatures: banks that lend money to buy homes, shops that sell milk and bread, companies that dig up rocks. What do we care of Nvidia and its price-to-earnings ratio?<\/p>\n \n\t\t\tRelated Article Block Placeholder<\/p>\n \t\t\t\tArticle ID: 323665\n\t\t<\/p>\n \t\t\t\t\t\t\t
\n\t\t\t\t![\"Deepfakes,](\"https:\/\/www.europesays.com\/ie\/wp-content\/uploads\/2025\/10\/20251011133726188232-original-1.jpg\")
\t\t\t<\/a><\/p>\n
\n\t\t\t\t![\"From](\"https:\/\/www.europesays.com\/ie\/wp-content\/uploads\/2025\/10\/Sam-elsom-feature-1.jpg\")
\t\t\t<\/a><\/p>\n