Aswath Damodaran traced the current market frenzy to the public debut of OpenAI's ChatGPT in November 2022, which fueled winner-take-all dynamics across the technology sector. The valuation expert warns that shifting entirely into cash can backfire, as mistiming the market causes investors to miss long-term equity returns that typically outpace inflation. To limit exposure, he suggests avoiding heavy concentrations in high-profile leaders like OpenAI, Anthropic, SpaceX, and the Magnificent Seven. Beyond purely financial concerns, Damodaran also voiced worry over how rapid technological disruption will permanently alter everyday life and education for younger generations.
Key points
Market bubbles serve as inherent features of the financial system that instruct participa…: Market bubbles serve as inherent features of the financial system that instruct participants on proper risk management.
Investors lacking immediate cash needs are generally better served by enduring market vol…: Investors lacking immediate cash needs are generally better served by enduring market volatility rather than attempting to time the bottom.
Portfolio risks can be mitigated by steering clear of outsized allocations to high-profil…: Portfolio risks can be mitigated by steering clear of outsized allocations to high-profile firms like SpaceX, Anthropic, and OpenAI.
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To explain how we got into this mess, Damodaran says we have to go back to November 30, 2022, when OpenAI unveiled ChatGPT, what was then a revolutionary AI chatbot. He noted that ChatGPT was then a low-tech AI chatbot, but in many ways, it brought nascent artificial intelligence into public consciousness.
"You bring the two together, powerful computing and this immense amount of data, you have AI," the Dean of Valuation quipped. He explained that artificial intelligence had been around for a long time, but what ChatGPT's public debut in November 2022 did was bring the technology into the spotlight.
Also read | AI bubble to burst sooner than expected? Michael Burry believes it would take only one season of revenue disappointment
Why Damodaran is worried about his grandkids
Today, AI is everywhere. It is in classrooms, businesses and even entertainment. “No matter what age you are, it is not just that you worry about your portfolio, which might be doing very well at the moment if you have got an index fund. You worry about the world around…
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