Is There A Bubble In AI Stocks?

I have seen and heard many things that have made me cynical about the investment industry, but nothing pricks my ears when I hear ‘valuation’ deployed as an entreaty for retail investors to buy expensive assets (one of the best I heard is a former colleague who declared that a company was expensive on the basis of a price to earnings ratio (P/E) but cheap on the basis of the earnings yield (E/P)…they are the same thing!).

On that basis my credulity was recently stretched when I heard an analyst at Morgan StanleyMS +0.5%, the large investment bank, declare that technology stocks are ‘attractively valued’ based on the ‘price to innovation’ ratio. Price to innovation is the ratio of the price of a company to its earnings plus what it spends on research and development – as such it is designed to make companies with scant earnings and large, risky investment budgets, look attractive.