Executive Summary
Damodaran sold his remaining NVIDIA position in 2025 after holding since 2018, citing that 'the bulk of the AI architecture wave is already written.' His exit from Tesla was driven by the company becoming a 'political investment' where car purchases depend on political alignment. The professor identifies a critical structural problem: Big Tech collectively spending hundreds of billions on AI infrastructure while each CEO believes they'll be the winner in what will likely be a 'winner-take-all' market with only 2-3 survivors. This represents classic overconfidence bias from executives who've 'always gotten A's.' The real danger isn't the spending itself—these companies have cash flows to absorb losses—but the financing method. Companies beyond the Mag-7 are borrowing through private credit markets to fund AI CapEx, creating systemic risk when the inevitable correction hits. Damodaran warns this mirrors every disruption in history: massive overinvestment followed by painful writeoffs. The market appears richly priced at current levels, with his implied equity risk premium calculation showing 8.4% expected returns—reasonable but offering little margin of safety during a global economic transition away from the post-WWII dollar-centric system.
Key Insights
what Aswath Damodaran said“They're each convinced they're going to win. And there is a bar mitzvah moment coming somewhere down the pathway, which is this market is not big enough for all of these companies that are spending tens of billions of dollars to be able to deliver.”
what Aswath Damodaran said“Right now it's almost like they can't make up their mind. They know that AI can do a lot of what they do but they can't make that full fledged switch to AI and charge a lower price because they will lose too much.”
what Aswath Damodaran said“My concern is that the other companies that are investing in this AI architecture slash LLM, some of them are borrowing money and they're borrowing through private credit. And this is where I'm concerned is that coming together of 100, I mean, last year, I think, what, $600 billion in CapEx collectively.”
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