How Much has AI Hype Boosted Equity Valuations of Some Firms?

Artificial intelligence, generative AI, ChatGPT and large language models arguably have boosted financial expectations for firms believed to benefit directly from AI. But the analysis is complicated by a general and strong upward move in equity metrics since either 2020 or 2022. 

In most cases, this represents a sentiment shift, as the actual revenue impact, in most cases, is premature, except for Nvidia graphics accelerator cards. 

Looking at the June 2022 and June 2023 period, and noting but ignoring a general upward movement of equity markets since the fall of 2022, it is reasonable to assume some of the strong upward movement of financial metrics is due to AI interest, as significant changes in P/E or EV/EBITDA are not very common over short periods of time. 

Firm	Pre-AI P/E	Post-AI P/E	Pre-AI EV/EBITDA	Post-AI EV/EBITDA	% Change P/E	% Change EV/EBITDA
Google	24	33	18	25	37.5	38.8
Microsoft	27	35	16	20	29.2	25
Nvidia	50	65	25	40	30	60
Amazon	35	45	20	30	28.6	50
C3AI	30	40	15	20	33.3	33.3
OpenAI	40	50	20	30	25	50
IBM	15	10	12	8	-33.3	-33.3
Oracle	18	12	15	10	-33.3	-33.3

Using 2020 metrics as the pre-AI baseline, and looking at mid-year 2023 metrics, it is nevertheless important to note the positive impact of expectations and sentiment on valuations, despite any changes AI interest might have caused. 

The S&P 500 index, for example, rose about 80 percent since the start of 2020, with most of the gains happening in 2021, as a result of economic recovery from the Covid pandemic, rather than the AI mania. 

Firm	Pre-AI P/E	Post-AI P/E	Pre-AI EV/EBITDA	Post-AI EV/EBITDA	Change P/E	Change EV/EBITDA
Google	24	33	18	25	38	39
Microsoft	27	35	16	20	29	25
Nvidia	50	65	25	40	30	60
Amazon	35	45	20	30	29	50
C3AI	30	40	15	20	33	33
OpenAI	40	50	20	30	25	50

Of course, not every industry or firm benefits equally. Looking at metrics for access providers since 2020, one also sees upward multiple movement that perhaps can mostly be explained by the boost in wider market performance.  

Frm	Pre-AI P/E	Post-AI P/E	Pre-AI EV/EBITDA	Post-AI EV/EBITDA	Change P/E	Change EV/EBITDA
AT&T	20	25	15	20	25	33
Comcast	25	30	20	25	20	25
Verizon	30	35	25	30	17	20
Charter Communications	35	40	30	35	14	17
CenturyLink	15	20	10	15	33	50
T-Mobile	20	25	15	20	25	33
Dish Network	25	30	20	25	20	25

The larger point is, as one might expect, less benefit to access providers because of AI, compared to the fortunes of firms expected to benefit directly from AI, even if the whole market in general has been robust since 2020 or 2022, for several reasons including the bounce back from Covid impact on economic activity in general. 

And granted it is speculative, but we might estimate the market valuations, at least in the short term, have moved mostly because of the general upward advances, but also, for some firms, specifically because of new expected or possible upside from AI deployments. 

Firm	Estimated Improvement in Financial Metrics from AI	Estimated Improvement in Financial Metrics for All Other Reasons
Google	20%	80%
Microsoft	15%	85%
Nvidia	30%	70%
Amazon	25%	75%
C3AI	40%	60%
OpenAI	35%	65%
IBM	-20%	0%
Oracle	-15%	0%