Discover how AI is impacting stock prices and market valuations with AlpineMacro's proprietary AI-Relevance Indicator (ARI). Find out the significant premium AI has added to market expectations and how it affects your investments.
The market's enthusiasm for AI-related stocks has been significant since 2023, with the "Mag 7" stocks surging by an impressive 44.7%. However, this rapid rise has sparked debates about whether AI is merely a bubble reminiscent of the dot-com mania or if it truly represents the driving force behind the next industrial revolution.
In a note to clients Monday, AlpineMacro said that to understand how much of this optimism is already baked into stock prices it developed a proprietary AI-Relevance Indicator (ARI).
They explain that the ARI gauges the exposure of companies to AI by analyzing the frequency of AI-related terms in their earnings calls.
This approach allows AlpineMacro to assess the premium the market has currently priced in for AI-related expectations.
According to the firm, AI has significantly influenced valuation multiples.
Their analysis suggests that without AI, the trailing P/E ratio for the average S&P 500 company would be 26.3 instead of the current 28, indicating a 6% premium due to AI.
Similarly, the forward P/E ratio, which currently stands at 23, includes a 4% boost from AI, translating to 0.9 additional points.
They add that the impact of AI on growth expectations is also notable. The market anticipates a 4.1% sales growth for the average S&P 500 firm over the next year, but without AI, this figure would drop to 2.7%.
In terms of EBITDA, AI is expected to boost growth by 2.1 percentage points, with the market projecting a 16.2% increase compared to 14.1% without AI influence.
The firm's findings underscore that AI has added a substantial premium to market expectations, justifying higher valuations across the board.
Analysis:
Investors need to pay attention to the impact of AI on stock prices and market valuations. With AI-related stocks surging and significant premiums being added due to AI influence, it is essential to consider how this trend may affect investment decisions. Understanding the role of AI in shaping future growth expectations and valuation multiples can help investors make informed choices and navigate the evolving market landscape.