AI Stock Valuations Peaked, but Revenue Growth May Offset Losses
Trivariate Research argues that falling price-to-earnings multiples won't hurt all AI stocks, citing strong revenue expansion for key players.
Key points
- Trivariate Research states that AI stock valuations have likely peaked permanently due to interest rates and policy.
- The firm argues that revenue growth in specific companies can offset the impact of declining price multiples.
- Recommended stocks include Iren, Nebius, CoreWeave, AMD, Marvell, and Oracle, which are expected to maintain strong earnings.
Artificial intelligence stock prices have likely reached their peak, according to a new analysis by Trivariate Research. The firm argues that while valuation multiples are set to decline, this does not necessarily signal a need for investors to abandon the sector. Instead, robust revenue growth in specific companies may more than compensate for the expected drop in share price premiums.
Adam Parker, the founder of Trivariate, noted that both the current interest rate cycle and policy directions point to a permanent peak in AI valuations. Despite this, the firm maintains a preference for exposure to the group, identifying several companies where earnings expansion is strong enough to counterbalance the shrinking multiples. This perspective offers a nuanced view for investors watching the market closely.
Rising rates pressure debt-heavy AI firms
The Federal Reserve recently raised its overnight borrowing rate to a range of 3.75% to 4%, marking the first hike in over three years. This move followed strong jobs data and a rise in inflation. Higher interest rates pose a significant challenge for many AI companies, particularly those heavily indebted for building out computing power, as their borrowing costs increase.
Political pushback adds to regulatory risks
Beyond financial pressures, AI firms face growing political resistance. Multiple states are considering bans on new data center construction, reflecting broad public concern. A Gallup poll indicated that 71% of Americans oppose such projects in their local areas. Additionally, potential job losses attributed to AI could trigger further regulation, posing additional risks to stock returns.
Selected stocks show resilience in earnings
Trivariate identified a list of companies where revenue growth could offset valuation drops, including Iren, Nebius, CoreWeave, AMD, Marvell, and Oracle. While some shares have seen recent declines, others like Marvell and AMD have rallied significantly year-to-date. CNBC reported that these firms maintain a positive earnings narrative, with continued upward revisions supporting their long-term outlook despite near-term volatility.
