The NYU professor said Meta, Alphabet and Microsoft are seeing declining returns on invested AI capital even as the biggest players remain protected by cash flow and balance sheet strength.
Aswath Damodaran warned that a potential AI shakeout is more likely to hurt smaller companies than the sector’s largest players, arguing that the biggest firms are financially equipped to absorb pressure even as returns weaken. The NYU professor, known as Wall Street’s Dean of Valuation, said the Magnificent Seven have the cash flow and balance sheet strength to withstand a downturn, while smaller rivals do not have the same protection. He said capital expenditure is running ahead of returns at Big Tech, and pointed to Meta, Alphabet and Microsoft as examples of companies showing falling returns on invested AI capital. His view suggests that if AI spending continues to outpace payback, weaker players could face the sharpest strain in any market reset.