BCA chief discusses the AI frenzy's peak: the current situation is a profit bubble rather than a traditional valuation bubble, and AI demand indicators will guide the market process

BlockBeats reports that on May 30, BCA Research Chief Global Strategist Peter Berezin analyzed that the current AI bubble is mainly a profit bubble rather than a traditional valuation bubble. Unlike many past stock market bubbles characterized by a rapid surge in price-to-earnings ratios (PE), valuations in the current AI sectors—especially semiconductors—are relatively reasonable, but profit expectations are excessively optimistic and unsustainable. Historically, similar situations appeared with real estate developers and banks before the 2008 financial crisis: their apparent PE ratios were not high, but they relied on unsustainable profit surges. Once profits could not be achieved, the bubble burst. Peter pointed out that semiconductor sales have shown parabolic growth, and current AI demand indicators do not yet suggest that the bubble is about to burst, but all bubbles eventually come to an end.

Peter emphasized that investors should not overly rely on Wall Street analysts’ profit forecasts, because stock prices often drop sharply before profit expectations begin to be revised downward. In previous cycles, 12-month forward EPS usually started to decline a few months after stock prices peaked; if investors wait for EPS to be revised down before selling, they may suffer significant losses. The current key is to monitor changes in AI demand indicators in advance.