Benzinga·2026-01-27 08:32Core Viewpoint - Aswath Damodaran warns AI investors about the unsustainable valuation of companies in the sector, particularly highlighting a disconnect between infrastructure spending and future earnings [1][2]. Group 1: AI Market Concerns - Damodaran describes the current AI market as exhibiting signs of a "Big Market Delusion," where excessive optimism leads to unrealistic revenue expectations [2]. - He estimates that the AI industry must generate "two, three, four trillion in revenues eventually" to justify the current capital investments in Large Language Models (LLMs) [2]. Group 2: Company-Specific Analysis - Nvidia has been sold off by Damodaran due to its stock being "priced for perfection," indicating that it requires too many favorable conditions to break even [4]. - Despite Nvidia's strong position in AI infrastructure, its current valuation offers no margin for error, prompting a staggered exit from the stock over four years [4]. - In contrast, Microsoft is viewed as a more stable investment, with its cloud business seen as essential and more plausible in justifying its valuation [5]. Group 3: Performance Comparison - As of 2026, Microsoft shares have declined by 0.56% year-to-date, with a 8.24% drop over the last six months and 8.22% over the past year [7]. - Nvidia's stock is down 1.26% year-to-date but has seen a 5.50% increase over six months and a significant 57.46% rise over the year [7]. - Benzinga's Edge Stock Rankings indicate that Microsoft has a weaker price trend compared to Nvidia, which maintains a stronger price trend across all time frames [7][8].