AI Mania Echoes Dot-Com Euphoria, Valuations Look Unsustainable: Manish Chokhani Sounds Caution
In a striking cautionary note for global equity markets, veteran investor Manish Chokhani, Director at Enam Holdings, has warned that the current wave of investor enthusiasm around artificial intelligence (AI) has pushed valuations of major chipmakers and tech giants into the “bubble zone.” Drawing parallels with the 1999–2000 dot-com mania, Chokhani said the present AI rally exhibits the same signs of speculative excess, even though the technology itself remains transformational.
Speaking to CNBC-TV18, Chokhani remarked that market behaviour today mirrors the euphoric sentiment that preceded the internet bubble. “It reminds me of the 1999–2000 period… Telecom companies built the backbone, but the market later realised the capex didn’t justify the returns,” he said.
Why Chokhani Calls Today’s AI Valuations a Bubble
Chokhani’s warning stems from the staggering valuations assigned to semiconductor and AI infrastructure companies—valuations he says are “far beyond fundamentals.” He questioned the logic behind paying $5 trillion for what he described as a “capital goods stock,” arguing that chip inventories degrade within three to five years and cannot sustain the exponential capex cycle currently underway.
He cited history as an important lesson:
“The NASDAQ took 12 years to reclaim its dot-com peak. Excesses in valuation often take decades to correct.”
Even market favourite Infosys, he noted, didn’t exceed its 2001 high for nearly a decade.
According to Chokhani, signs of speculative frenzy are unmistakable:
sky-high valuations assigned to AI infrastructure players,
aggressive chip investments by new entrants like Google,
and what he described as the “craziness around OpenAI valuations.”
“Demand falls suddenly—everyone wakes up at the same time and stops spending,” he warned, adding that a 50–60% correction cannot be ruled out for some of the hottest AI stocks.
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AI as a Technology Will Win—But AI Stock Prices May Not
Despite his concerns on valuations, Chokhani was emphatic that AI as a technology is here to stay and will reshape industries much like the internet revolution. “AI is here—and it’s transformational. But not necessarily for the stock prices of many AI companies,” he said.
He drew another analogy from history:
During the internet era, the companies that built the infrastructure—telecom giants—weren’t the biggest wealth creators. Instead, internet users and adopters in sectors like financial services, healthcare and retail became the real beneficiaries.
Similarly, Chokhani expects an “AI second-derivative play” to outperform in the long run.
He said, “The way to play AI is through the users—those serving consumers—not necessarily the capital providers.”
Indian Context: Why Adopters May Outperform AI Creators
Chokhani explained this concept by citing India’s digital transformation journey. While Reliance Jio built one of the world’s largest broadband networks, the companies that captured disproportionate value were the new-age digital platforms—Zerodha, Groww, Zomato, and others.
“You need to think in terms of the second derivative: where is this ball going?” he emphasised, suggesting that the next big profits may come from Indian industries that deploy AI to improve productivity, margins and customer experience.
Chokhani on Indian Markets: Valuations Stretched, Growth Not Keeping Pace
Shifting to the Indian market outlook, Chokhani cautioned that the current muted sentiment reflects deeper concerns about economic momentum. Despite healthy GDP prints, he believes nominal growth remains subdued and inflation hovering around 2–3% limits earnings expansion.
The market, he said, has struggled to digest speculative valuations visible across pockets since September 2024, when prices “went completely off the charts.”
He added:
“Everyone is chasing growth—even if it means paying 100x forward earnings for a QSR company while ignoring a PSU bank trading at 5x P/E.”
He believes this skew reflects persistent biases rather than rational allocation.
Foreign investors, he noted, continue to wait for clarity on both growth visibility and valuation comfort before returning aggressively to Indian equities.
Global Markets Enter a Regime Change as AI Dominates Narrative
Chokhani described the global market setup as undergoing a “regime shift.” While US mega-cap tech stocks have taken most of the valuation share, they have recently begun underperforming emerging markets and key commodities. He expects this divergence to continue as inflation expectations rise in developed economies, fuelling demand for commodities like gold, silver, uranium and copper.
He warned that India may tread water in the near term unless the country builds its own scalable tech champions and global brands, instead of relying solely on market share shifts within the domestic economy.
Where Opportunities Still Remain: Value Pockets and Asymmetric Bets
Despite his cautious tone, Chokhani sees selective opportunities emerging—particularly in unloved, undervalued segments. He highlighted PSU banks as one such pocket, backed by ongoing government interest in privatisation and attractive valuations relative to the wider market.
He also referenced the long-term shift from tech to hard-asset themes, reflecting strong recent performance in commodities.
Chokhani said investors should think in terms of asymmetric growth:
“If a stock could be 5x P/E by 2030 and is priced right today, the odds favour strong long-term returns.”
His message, however, remains consistent: valuation discipline matters. “When you’re buying stocks at 50x or 100x earnings, everything has to go perfectly right for you to make money.”
