Are today’s expensive AI stocks the next market leaders – or just another bubble waiting to burst?
History seems to be repeating itself and in relatively short order. The recent rally has led to a sharp increase in the number of companies valued at over 10 or 20 times their annual revenue.
Companies with an enterprise value-to-sales ratio (EV/sales) greater than 10 now account for over 20% of the MSCI World index, levels not seen since the dotcom bubble. The question now is whether these inflated valuations can create lasting value or are destined to unravel under pressure.
We first looked at this in late 2020 as the FAANG stocks surged, warning that these kinds of stocks were likely to underperform. And for a while, that call was correct. From 2020 through 2022, this group of stocks lagged significantly.
