Quote · Excess Returns
We Asked GMO’s Head of Asset Allocation Why This Bubble is Easy — But Investors Will Get it Wrong
Where this was said
Why this may be an earnings bubble
At 21:43 · chapter starts 20:00
Ben Inker contrasts today's market with the 2000 bubble, arguing that while fewer stocks trade at insane valuations, AI CapEx may be creating an earnings bubble by flattering profits before depreciation arrives [1] — Ben Inker "When Microsoft spends $200 billion on data centers, that spending becomes someone else's revenue immediately — but the depreciation is spre…" 21:43 .
European corporate earnings rose 100% over 4 years ahead of the 2007-08 crisis and have never fully recovered to those levels on an index basis.
When Microsoft spends $200 billion on data centers, that spending becomes someone else's revenue immediately — but the depreciation is spread over years. Right now, a huge chunk of that investment hasn't even started depreciating yet. This makes corporate profits look unsustainably good.
Unlike 2000's valuation bubble, today may be an earnings bubble: surging AI data center spending boosts profits before depreciation arrives, making valuations look cheaper than they are.
