Investors are paying a sizable premium for AI exposure. One example: the 32 stocks in the $CHAT Generative AI ETF have returned 77% this year. The 22 $CHAT ETF stocks that have positive earnings projected for the next 12 months trade at an average P/E of 31x. The other 10 $CHAT ETF stocks have infinite P/Es, either due to negative earnings or trivially positive earnings that create nonsense P/E ratios over 100x. The large language model revolution is going to have to live up to the high end of expectations to justify this. I have seen estimates that AI will eventually add ~10% to the fair value of the S&P 500 due to some combination of augmented employee productivity and staff reductions, but I’m not sure how one would measure that.
- Date Posted:
- June 15, 2023
Seven of the biggest constituents — Apple, Microsoft, Google owner Alphabet, Amazon, Nvidia, Tesla and Meta — have ripped higher, gaining between 40 percent and 180 percent this year. The remaining 493 companies are, in aggregate, flat. Big tech companies dominate the index to an unprecedented degree. Just five of those seven stocks represent nearly a quarter of the market capitalisation of the entire index. At $2.9tn, Apple alone is worth more than the UK’s top 100 listed companies put together.