AI has been a disruptor — it has rewritten the stock market and the job market. Joining me today is Professor Robert Salomon, Dean of the Stern School of Business at NYU Abu Dhabi. Rob, welcome to the show.
Happy to be here, Lucy.
What is your take on the valuations of AI companies today?
There is no doubt that AI will transform how we live and how we work. But I am a little worried about where valuations have gotten to. If we look at standard metrics like the Shiller CAPE index and PE ratios, they are running in the low 40s. The .com bubble at its height reached around 44. Forward PE ratios are running in the low 20s — and they got to about the mid-20s at the .com peak. Some of the metrics that we pay attention to are starting to scream — flashing red.
If this bubble were to burst, what could trigger it?
I would not say it definitely will burst — the market can stay irrational far longer than I can remain solvent. But if it were to correct, there are a few things I look at. CapEx is running extremely hot. Hyperscalers alone are spending $600 to $700 billion this year on capital expenditure. If you include all AI-related CapEx, you are looking at $1.3 to $1.4 trillion. And the profitability is not quite there yet to meet that level. Right now we are assuming earnings will climb to meet the price levels — but prices can also come down to reflect lower earnings. Only about 2% of companies say AI has helped them be more productive, and only about 10% have found real use cases for it in their organisations. Goldman Sachs and MIT research confirms businesses are struggling. The circular funding dynamic — where companies like Nvidia fund smaller AI firms which then use that cash to buy Nvidia chips — could unwind if those smaller companies struggle.
If the bubble burst, how bad could it be?
A lot depends on the knock-on effects to other markets. To me it looks more like the .com bubble than the great financial crisis. So I do not think it would be as severe as the Great Recession. But we could see valuations and markets drop in the order of 20 to 30% in the extreme. I am not predicting that will happen. But these are the things to be on the lookout for.
Bill Gates says white collar jobs will be impacted within a decade. You just launched an executive MBA. What is your message to those students?
We did just launch our executive MBA programme — it started this past Saturday with 37 students from 20 different countries. Bringing this back to the jobs question — yes, certain jobs are threatened. Paralegals. Coders. Call centre operators. But do I think that is bad for business school graduates? Actually, I do not. What HR recruiters are looking for are people with higher-order critical thinking, analytical thinking, leadership, management skills. Those are not going away. The people who understand the technology and can bring higher-order skills — who know how to structure problems and deploy AI within businesses — those are the people who will find tremendous opportunity even in this new world.
Thank you so much for coming on. Good luck to all the executive MBA students.
Thanks for having me.
