3 AI Stock Winners & 3 Write-Offs - Prof. Damodaran
Speakers
Summary
- Market Context (Early 2026): The discussion takes place in early 2026. 2025 was a strong year where Alphabet and Nvidia "saved" the Mag 7, but Damodaran has begun trimming exposure.
- Valuation Warning: The implied equity risk premium is ~4.1%, historically low but within 75-year averages. However, Damodaran is holding more cash than usual due to "rich pricing" and potential transition risks in the global economic order.
- The "Trust" Crisis: A major theme is the global loss of trust in institutions and central banks, which drove Gold and Silver rallies in 2025 despite falling inflation.
- AI Capex Bubble: There is a "Big Market Delusion" in AI. While Mag 7 companies can afford the spend, smaller players financing AI ambitions via Private Credit create a systemic risk.
- Sports Valuations: Sports teams are "trophy assets" for billionaires. Traditional valuation metrics (cash flow) do not apply; prices will remain high as long as the supply of billionaires exceeds the supply of teams.
Trade Ideas
"In 2025 I unwound the rest of my Nvidia... the bulk of the AI architecture wave Nvidia's already ridden... I'm not [sure] that there's that much extra growth left to justify the pricing there." The market is extrapolating the initial AI infrastructure build-out indefinitely. As the build-out phase matures, growth rates will normalize, causing multiple compression. He has fully exited the position. A "second wave" of AI hardware demand larger than the first.
"I shed my Tesla fairly early in the year [2025]... Tesla became a political investment... when people think about whether they buy your car based on what their political standing is, you're in trouble as a business." The brand has become polarized. A consumer goods company cannot sustain growth if 50% of the addressable market alienates the product due to the CEO's political affiliation. Damodaran sold his position; the stock is now driven by political sentiment rather than fundamentals. Tesla succeeds in robotics/AI (Optimus) detached from car sales.
"Amazon probably has the broadest business that it can go after because it's a disruption machine... it is the company probably that has the greatest capacity to get to 10 trillion." Unlike Nvidia (pure chip play), Amazon's infrastructure and logistics allow it to disrupt multiple sectors simultaneously, giving it the highest total addressable market (TAM) ceiling among the Mag 7. Amazon is the most likely candidate to reach the next market cap milestone ($10T). Regulatory breakup or slowing AWS growth.
"Software had the highest margins... AI is actually taking much of what used to take them people and resources to do and doing it almost effortlessly... They have too much to lose... [It's] the innovator's dilemma." Legacy SaaS companies (Salesforce, Oracle) rely on high-margin, sticky seats. AI allows cheaper, automated alternatives. These incumbents cannot pivot to cheap AI solutions without destroying their own lucrative business models. Avoid legacy software firms that are "in denial" or unable to cannibalize their own high margins. Successful pivot to AI-agent based pricing models.
Aswath Damodaran
Professor of Finance at NYU Stern
"My concern is the other companies that are investing in this AI architecture... borrowing through private credit... when that correction hits it's not just the companies that are going to go under it's the lenders." While Big Tech uses cash for AI capex, smaller players are using high-interest private debt. If the AI ROI isn't immediate, defaults will spike. The risk sits with the lenders (BDCs and Private Credit funds). Avoid exposure to private credit vehicles that have funded the speculative AI build-out. AI generates immediate cash flow for borrowers, preventing defaults.
Aswath Damodaran
Professor of Finance at NYU Stern
"Gold prices are up almost 70%, silver price are up 150% [in 2025]... difficult phenomenon to explain unless you argue that there's a loss of trust." Investors are losing faith in central banks and government fiat management (institutional trust). This drives capital into non-sovereign stores of value, regardless of inflation rates. Momentum in precious metals is driven by a structural shift in sentiment (trust), not just inflation data. Restoration of faith in central bank policy or a deflationary crash.
Aswath Damodaran
Professor of Finance at NYU Stern
"I am holding back because the market is richly priced... holding back a little idle cash into US stocks... hanging out in T bills." With the Equity Risk Premium at ~4% and potential global economic transitions, the risk/reward favors holding a cash buffer (T-Bills) over full equity deployment. Maintain a cash buffer for optionality and protection. Market melt-up (missing out on gains).
Aswath Damodaran
Professor of Finance at NYU Stern
"They become trophies for billionaires... As long as the number of billionaires exceeds the number of professional sports franchises, there's no correction coming." Valuation metrics (P/E, Cash Flow) are irrelevant for sports teams. They trade on scarcity value (Ego/Status). Publicly traded sports holding companies trade at discounts to private market "trophy" values. Long sports assets as they are immune to traditional valuation corrections. A global recession that significantly reduces the billionaire population.
Aswath Damodaran
Professor of Finance at NYU Stern
"You don't hold cash to make money. You hold cash to stabilize the process... even in your best case scenario of Bitcoin being a good investment, I don't want companies holding Bitcoin." Corporate treasuries holding volatile assets (Bitcoin) instead of cash fail their primary duty (stability/liquidity). This introduces unnecessary existential risk to the operating company. Avoid companies that treat their balance sheet like a hedge fund (specifically referencing the MicroStrategy model). Bitcoin price skyrockets, justifying the gamble in the short term.
Up Next
This Meb Faber Show video, published February 27, 2026, features Aswath Damodaran discussing NVDA, TSLA, AMZN, CRM, ORCL, ARCC, BXSL, GBDC, GLD, SLV, BIL, SGOV, MSGS, MANU, MSTR. 9 trade ideas extracted by AI with direction and confidence scoring.
Speakers: Aswath Damodaran · Tickers: NVDA, TSLA, AMZN, CRM, ORCL, ARCC, BXSL, GBDC, GLD, SLV, BIL, SGOV, MSGS, MANU, MSTR