The Fundamental Justification of the Bubble‐Like Gen AI Stock Valuations

We discuss the valuations of Gen AI stocks within the framework of the investment opportunities approach to valuations of growth shares. The bubble-like valuations can be justified only if the Gen AI capex produces the rate of return in excess of a normal rate of return. At this point, the expected ROI on Gen AI Capex does not support the valuations. In this article, we comment on the valuations of Gen AI–related stocks and discuss the key issues within the framework of the investment opportunities approach to the valuation of growth shares. First, we start with some background.