Is there a tech bubble in the US stock market? Evidence from an agnostic valuation procedure

Marco Albori (), Valerio Nispi Landi () and Marco Taboga ()
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Marco Albori: Bank of Italy
Valerio Nispi Landi: Bank of Italy
Marco Taboga: Bank of Italy

No 975, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We propose an agnostic procedure for deriving implied abnormal earnings growth rates from equity prices. We use a dividend discount model that requires minimal subjective inputs, as its parameters are constrained by equilibrium conditions and can be estimated by the generalized method of moments using historical data. We use the model to address the debate on the potential overvaluation of large US technology companies involved in the Artificial Intelligence race. We compute the abnormal growth rates of earnings that would justify their current equity valuations, i.e., that would make them compatible with rational pricing in line with historical norms. We find that the current valuations would be rational if technology firms were able to sustain expansion rates for earnings that, while high, do not seem implausible given historical experience and the structural drivers of future growth.

Keywords: dividend discount model; GMM estimation; equilibria on financial markets; rational stock valuation; artificial intelligence (search for similar items in EconPapers)
JEL-codes: G10 G12 G15 (search for similar items in EconPapers)
Date: 2025-10
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