Equities: AI Boom risks and resilience – Commerzbank

Commerzbank economists Dr. Jörg Krämer and Bernd Weidensteiner argue that the AI-driven investment surge in US high-tech and IT is substantial but not yet excessive compared with past booms. They see early signs of faster US productivity, elevated equity valuations and profit expectations, and warn of potential corrections, yet conclude the AI boom and associated stock market strength are likely to persist for now.

AI boom, valuations and bubble risk

"The introduction of artificial intelligence has triggered an investment boom, particularly in the United States. The sheer scale of the resources being deployed increases the risk of a bubble. This could trigger a setback in the stock markets. We have assessed the risks and concluded that the boom is likely to continue for the time being."

"Furthermore, while stocks are expensive, they are valued lower than they were at the peak of the dot-com bubble. The price-to-earnings ratio of stocks in the S&P 500 Index, based on expected earnings over the next twelve months, currently stands at 20, compared to 25 at the beginning of 2000. We therefore do not yet view the current valuation as a cause for alarm."

"Even though we don’t expect this to happen in 2026 or 2027, an investment boom usually ends in a crisis. What might that look like? Economic history offers a blueprint in the form of the dot-com bubble in the second half of the 1990s."

"To date, a large portion of these investments has been financed from cash flow; it is only recently that companies have increasingly turned to loans. Overall corporate debt has been declining relative to GDP for years. An end to the AI boom would therefore be unlikely to trigger a banking crisis; rather, as in 2001, it would primarily result in a slump in stock prices."