Billionaire venture capitalist Chamath Palihapitiya says AI is permanently altering how stocks are valued, and that investors who ignore the shift do so at their own peril.
In a new post on X, Palihapitiya reacts to new Morgan Stanley data showing that the S&P 500’s price-to-earnings multiple has fallen 18%, even as forward earnings growth trends higher.
While some analysts interpret the divergence as a bullish signal, suggesting that stocks are undervalued, Palihapitiya believes the combination indicates that the market is now less willing to pay a premium for future profits.
“I struggle to see a transient explanation — meaning some temporal reason that won’t be here at some point soon. I think AI is causing a structural reset to how risky assets are priced. A digital super-god means both that you can disrupt someone else but that, in short order, someone else can disrupt you. As a result, you don’t want to pay a large premium for the future.”
Palihapitiya appears to suggest that AI has made every company, no matter how dominant, more vulnerable to being overtaken by a competitor. That uncertainty, he says, is now being baked into stock prices across the board.
According to the billionaire, the tech sector is particularly vulnerable.
“A sustained repricing has huge implications for tech companies’ debt loads and SBC.”
Stock-based compensation (SBC) is a primary tool that tech companies use to attract and retain talent. A prolonged decline in valuations would erode the real value of SBC packages and could make it significantly more expensive for tech firms to service debt taken on during a higher-multiple era.
Investors had sniffed out the repricing of risk assets over the past few months, dumping software names amid AI-disruption fears. The iShares Expanded Tech-Software Sector ETF (IGV), which tracks the performance of US-traded stocks from the software industry, is down over 25% year-to-date.
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