NYU finance professor flags declining returns on capital for tech giants amid massive AI investments without matching earnings growth.
NYU Stern finance professor Aswath Damodaran cautioned that Meta, Alphabet, and Microsoft may not see returns on their AI investments materialize soon. He highlighted a sharp drop in marginal return on invested capital for the three companies, calling it “pretty amazing given how big these companies are.”
Damodaran analyzed changes in operating income against invested capital for the firms, excluding Tesla and Nvidia from the group. The companies have spent tens of billions on AI capital expenditures, with no signs of slowing down. Without earnings growth to match, he warned of a shift toward more capital-intensive, lower-return businesses.
The professor also suggested the market may have reached “peak AI” hype, anticipating further consolidation and correction in the sector.