AI Stocks on the Rise: Worthwhile Investments or Overvalued?

The current quarterly reports of S&P 500 companies are attracting significant interest from investors, as the focus is particularly on investments in artificial intelligence (AI). Despite an anticipated slowdown in profit growth—with earnings expected to rise by 5.3% according to a Reuters report, compared to a 13.2% increase in the same quarter of the previous year—the technology and communication services sectors are proving to be frontrunners. These industries are projected to achieve profit growth of 15.4% and 12.3%, respectively. AI-related companies have dominated earnings reports since last year, contributing to the strong performance of the S&P 500, which has risen by approximately 21% since the beginning of the year. Analysts are particularly interested in the monetization strategies of major companies regarding their AI initiatives. For example, Meta experienced strong stock gains following indications of revenue increases. In contrast, the AI expenditures of heavyweights like Google raise questions about their integration into existing business models. The S&P 500 is currently trading at 22.3 times future 12-month earnings estimates, significantly above its long-term average. Investors hope that quarterly earnings will justify the high stock valuations, especially as the semiconductor sector remains a focal point of AI investments. Lam Research Corporation, a provider of semiconductor processing equipment, is currently showing mixed signals: Citi recently lowered the price target from $990 to $893, yet maintained a buy recommendation. The adjustment was justified in light of an expected market correction in the semiconductor equipment sector until the first half of 2025. While demand in the server AI segment remains unusually strong, consumer demand in the areas of PCs, smartphones, and automobiles is relatively weak.