AI Market Correction Looms as Nvidia Valuations Reach for Perfection

Aswath Damodaran, the 'Dean of Valuation' at NYU, has exited Nvidia (NASDAQ: NVDA) and is warning investors about a potential AI market correction. He compares the current AI boom to the late 1990s dot-com era and believes that the eventual correction could be more damaging than the bust of 2000.

Damodaran argues that AI companies would collectively need to generate $2-4 trillion in revenues eventually to justify the enormous capital being poured into Large Language Models. He contends that investors are assuming they will each capture a majority of this vast new market, leading to what he calls a 'Big Market Delusion'. Venture capitalists and private market investors are among the most exposed, according to Damodaran.

Damodaran completed his full exit from Nvidia at the end of last year, selling his position in a staggered fashion over four years. He acknowledges that Nvidia is a company that delivers, but believes the stock is now priced for perfection, leaving virtually no margin of safety for investors entering at current levels.