Sam Altman blows more air into notion that AI stocks are in a dangerous bubble

OpenAI CEO Sam Altman is once again cautioning investors about excessive artificial intelligence hype, warning that sky-high expectations for AI stocks could lead to significant disappointment. Despite being bullish on AI’s transformative potential, Altman believes the market is currently overexcited about the technology’s near-term impact, echoing concerns he first raised during GPT-4’s development when he said “people are begging to be disappointed.”

The big picture: Altman acknowledges the market appears to be in an AI bubble, with many stocks trading at unsustainable valuations that don’t align with current business fundamentals.

• “Are we in a phase where investors as a whole are overexcited about AI? My opinion is yes. Is AI the most important thing to happen in a very long time? My opinion is also yes,” Altman said.
• This creates a paradox where AI’s long-term importance doesn’t justify current market pricing for many companies.

Key examples of inflated valuations: Palantir Technologies, a data analytics company, serves as the most extreme case, with its market cap reaching around $370 billion despite generating only $3.4 billion in trailing revenue.

• The company trades at a price-to-sales multiple of approximately 110 and a price-to-earnings ratio of 520.
• Palantir is now worth more than established blue-chip companies like Coca-Cola, Wells Fargo, and T-Mobile US, despite its relatively modest revenue base.
• Even Microsoft, with its Copilot assistant and AI-powered PCs, trades at nearly 40 times trailing earnings—unusually high for the tech giant—while growing at 18% quarterly.

Why this matters: The disconnect between AI promise and current performance could set up investors for substantial losses if companies fail to meet elevated expectations.

• While AI has potential to transform businesses meaningfully, the actual payoff may not align with current investor expectations.
• Companies with excessive valuations become vulnerable to significant sell-offs if they can’t deliver on the growth implied by their stock prices.

What investors should know: Altman’s warnings echo broader concerns about whether generative AI will deliver the radical operational changes and job displacement that many anticipate.

• With generative AI still in early stages, much remains to be proven about its real-world impact on business operations.
• Valuation matters regardless of business performance—even well-performing companies can be poor investments at inflated prices.