The AI Boom Is Headed For A Reckoning — with Aswath Damodaran

The AI explosion is reshaping the macroeconomy far beyond the dot‑com era. Investment is flowing into data centers, power grids, and water infrastructure to support massive model training workloads. As Aswath Damodaran notes, this physical footprint creates a broader base of real assets that would have to unwind in a correction, making any downturn more systemic than the early‑2000s tech bust. The episode highlights that even a $1 million haul of discarded Yu‑Gi‑Oh! cards illustrates how consumer spending is being redirected toward AI‑related services and hardware.

Despite the ongoing Iran‑related crisis and gas prices hovering around $4.50‑$5 per gallon, equity markets have shown surprising resilience. Damodaran tracks an ‘equity risk limit’ and observes that the S&P 500 has risen roughly 8 % year‑to‑date, while forward P/E ratios have actually fallen. Analysts are now pushing earnings expectations into 2027 and 2028, effectively postponing the impact of higher energy costs. The professor warns that the real danger lies not in steady gas prices but in a sudden spike that could erode corporate earnings, a scenario still absent from most forecasts.

The conversation turns to the broader correction risk. Damodaran argues that any pull‑back will likely affect multiple sectors—data‑center construction, cloud services, and even consumer discretionary—rather than being confined to pure‑play tech stocks. He also cites Poland’s rapid post‑war growth, projecting that in four years its GDP could surpass the United Kingdom’s, a shift driven by robust industrial output and foreign investment. For valuation professionals, these dynamics underscore the need to adjust discount rates and incorporate geopolitical risk premiums, especially when assessing companies with exposure to volatile energy costs and AI‑driven capital expenditures.