Article by Kieran Degiorgio
If there’s ever been a ‘million dollar’ question, it’s the one posed by the title of this article, with this being ever-present in the market’s psyche since OpenAI launched Chat GPT on the 30th of November 2022.
AI has been presented as a technological breakthrough which in its essence changes the way we interact with computers, breaking the barrier of translation previously needed via coding and user-friendly data aggregators or platforms, allowing us to command these machines, which are now an integral part of our lives, using simple, plain, English.
The immediate winners were, in hindsight, obvious, as forward-looking expectations for compute demand and chips, necessary in the training and development of Large Language Models (LLMs) such as Chat GPT, or Anthropic’s Claude, or Google’s Gemini, skyrocketed. So too did expectations for the profits generated by semiconductor companies, most notably Nvidia, with stock prices following suit. In fact, Nvidia’s shares grew in value by circa 13 times since OpenAI’s launch, while the broader iShares Semiconductor Index more than quadrupled since then. As the saying goes, during a gold rush, sell shovels.
But is the equity market getting ahead of itself and have expectations become too optimistic for a technology which, all in all, is still in its infancy, which is still in its early stages of adoption, and is still to be stress-tested from a regulatory, privacy, and security standpoint? The naysayers also express reasonable skepticism in relation to the promised AI led gains in productivity, and the broader effect on labor market dynamics.
These topics would all deserve their own separate articles, but let’s zoom in on recent developments and observe both sides of the coin.
Undoudebtdly, the observed rally has been well supported fundamentally. The S&P500 experienced considerable growth in both its top and bottom line, along with an improvement in profitability margins to well-above historical averages. In fact, for Q1 2026’s earnings season, S&P500 companies registered 27% year-over-year earnings growth on an aggregate basis.
Forward-looking guidance has been affirmed or improved, and while the S&P500 and its tech-heavier counterpart, the NASDAQ100, are at all-time highs, both are now cheaper from a valuation perspective, versus the end of 2025 or the end of 2024 and not at levels which could be deemed exuberant. A feather in the cap of the bullish camp. As such, with fundamentals delivering, the comparison versus the multiple-led boom and bust of the early 2000s, the Dot-com bubble, loses applicability.
Recent developments along with the launch of a variety of agentic AI models, specifically designed to tackle certain tasks or needs, further bolstered optimism. A material increase in the number of new businesses in the US seemingly reinforces the narrative of AI allowing less people to do more. Jevons paradox further fans the flames for AI believers, with this stating that demand for a resource increases as the cost for the same resource decreases through gains in efficiency, promising continued demand for AI as adoption is scaled up.
So, the initial signs have been positive and the numbers, at a broad level, have been adding up, but are they sustainable?
The Magnificent Seven have considerably decreased buybacks, with free cash-flows now allocated in major part to AI investments. These companies also recently sought financing through international capital markets via the issuance of debt. While the funding runway appears lengthy when considering this group’s strength in generating cash from operations, along with how robust their balance sheets are, one can reasonably conclude that it would be difficult to maintain such levels of investment in perpetuity. The bears, or those which are pessimistic, also question the return being generated on such capital expenditures.
As AI adoption increases, skeptics also question the lack of improvement in per unit economics, which is thus far not improving through economies of scale, as one would expect. Infrastructure and energy constraints are also other stumbling blocks, along with a declining rate of marginal improvement in model performance in spite of ever-increasing computing power.
We’re still in what feels like the early-innings, with any definitive answer to the questions posed above being near impossible to ascertain with confidence. What is sure however, is that the ‘AI Boom vs AI Bust’ debate is set to continually dictate investor sentiment and market performance.
Kieran Degiorgio is a Senior Portfolio Manager and Research Analyst at Curmi & Partners Ltd.
The information presented in this commentary is solely provided for informational purposes and is not to be interpreted as investment advice, or to be used or considered as an offer or a solicitation to sell/buy or subscribe for any financial instruments, nor to constitute any advice or recommendation with respect to such financial instruments. Curmi & Partners Ltd, with registered address Finance House, Princess Elizabeth Street, Ta Xbiex, Malta XBX 1102, is a member of the Malta Stock Exchange and is licensed by the MFSA to conduct investment services business.