Commerzbank assessed that the US artificial intelligence (AI) investment boom is likely to continue for the time being despite overheating concerns. While high stock valuations pose a burden, they have not reached dotcom bubble levels, and even if corrections occur, the possibility of spreading into a financial crisis is limited, according to Commerzbank's analysis. On local time, Commerzbank senior economist Bernd Weidensteiner stated in a report that hundreds of billions of dollars in AI infrastructure investment is underway centered on US Big Tech and hyperscalers, and this investment expansion is similar to investment cycles seen during historical technological innovation phases.
AI Investment Growth Remains Below Historical Tech Boom Levels
The bank diagnosed that AI investment expansion is not yet at excessive levels. According to Commerzbank, real IT equipment and software investment is estimated to increase by approximately 50% this year from 2022, when ChatGPT was launched. This growth pace is moderate compared to the early stages of major past technological innovations. During the 1990s dotcom bubble, IT investment had already surged more than 120% from the baseline (1995) only four years after optimism began in earnest. Compared to the real investment growth during the 19th century British railway boom, current AI-related investment speed is maintained at relatively low levels.
Weidensteiner analyzed that "on the premise that AI is one of the major foundational innovations in economic history, the current investment cycle has not yet reached the extreme of overheating."
Productivity Gains and Valuation Metrics Support Market Optimism
Indicators supporting market optimism are positive. US non-farm labor productivity has increased at an average annual rate of 2.6% since 2023, exceeding the long-term pre-COVID trend of 1.4%. However, he added that given the large revision range of recent productivity statistics, further confirmation is needed on whether the trend has changed.
While stock prices have already risen to considerable levels and act as a burden, they are not yet a major risk. Commerzbank analyzed that the current S&P 500's 12-month forward price-to-earnings ratio (PER) is approximately 20 times, a high level, but lower than approximately 25 times at the peak of the dotcom bubble in early 2000.
The bank also stated that the Federal Reserve is unlikely to pursue additional interest rate hikes, and as inflation gradually slows, conditions for interest rate cuts will be established in the medium term.
Investment Concentration and Profit Growth Requirements Present Risks
Potential risk factors exist. Current US corporate investment is excessively concentrated only in AI, and real corporate investment in sectors excluding IT has already shown a contraction trend for some time. This was pointed out as a vulnerability that reduces the diversity of US economic growth.
Additionally, the corporate profit growth rate required by the market to justify current high stock prices is excessively high. According to Commerzbank's calculations, based on S&P 500 listed companies, operating profit must increase by 24% this year and approximately 16% by 2027.
Systemic Banking Crisis Risk Remains Limited Despite Potential Corrections
The report noted that even if the AI investment cycle weakens in the future, the possibility of spreading into a systemic banking crisis like the 2008 financial crisis is small.
Weidensteiner explained that "during the dotcom bubble collapse, the Nasdaq index plummeted nearly 80% from its peak, the employment market cooled, and the unemployment rate soared from below 4% to above 6%. At that time, the shock was absorbed by stock price corrections rather than debt, so it did not lead to large-scale loan defaults or financial system collapse."
FAQ
What did Commerzbank say about the sustainability of US AI investment?
Commerzbank senior economist Bernd Weidensteiner stated that the US AI investment boom is likely to continue for the time being despite overheating concerns. Real IT equipment and software investment is estimated to increase by approximately 50% this year from 2022 when ChatGPT was launched, which is moderate compared to historical tech booms like the 1990s dotcom bubble when IT investment surged more than 120% from baseline within four years.
How do current stock valuations compare to the dotcom bubble period?
According to Commerzbank, the current S&P 500's 12-month forward price-to-earnings ratio (PER) is approximately 20 times, which is high but lower than approximately 25 times at the peak of the dotcom bubble in early 2000. While high valuations pose a burden, they have not reached dotcom bubble levels, and the bank assessed that even if corrections occur, the possibility of spreading into a financial crisis is limited.
Why does Commerzbank believe a systemic banking crisis is unlikely?
Commerzbank noted that during the dotcom bubble collapse, the Nasdaq index plummeted nearly 80% from its peak and unemployment soared from below 4% to above 6%, but the shock was absorbed by stock price corrections rather than debt, so it did not lead to large-scale loan defaults or financial system collapse. The bank assessed that even if the AI investment cycle weakens, the possibility of spreading into a systemic banking crisis like 2008 is small.
