Source: Fortune
Summary
Economist Steve Hanke believes that the market is getting “mugged by reality” as it misprices earnings in the AI sector. He argues that there are two bubbles in the market: a classic valuation bubble and a more dangerous earnings bubble. IBM’s recent stock crash, despite a modest revenue miss, suggests that the market is starting to question the earnings growth narrative. Hanke points to record bank profits as evidence that credit is still flowing freely, inflating asset prices and reported earnings. The article also cites BCA Research’s Peter Berezin, who has been arguing that the AI trade is primarily an earnings bubble.
Our Reading
The numbers tell one story. IBM’s stock crash, JPMorgan’s record profits, and Goldman Sachs’ 84% jump in earnings all seem to be part of a larger narrative. But what if the earnings themselves are the problem? Hanke and Berezin argue that the market has been mispricing earnings in the AI sector, and that the recent IBM crash is a sign that the market is starting to wake up. The question is, what happens when the music stops and the earnings bubble bursts?
“The market is getting mugged by reality,” Hanke says. Jamie Dimon, CEO of JPMorgan, seems to agree, warning of too much “exuberance” in the market. But what does it mean when the CEO of a bank that just posted record profits is warning of a bubble?
Author: Evan Null
