AI Stocks Must Face Higher Rates and Normal Valuation Rules, UBS Warns

The artificial intelligence boom has driven massive investment and soaring profits for U.S. tech companies, but UBS strategist Michel Lerner warns that such surges are historically unsustainable. For years, AI stocks have defied traditional valuation metrics, buoyed by near-zero interest rates and speculative enthusiasm. Now, with interest rates elevated, the calculus has changed. Higher borrowing costs erode the present value of future earnings, making it harder to justify sky-high multiples. Lerner points to past tech cycles where investment surges and profitability spikes eventually reversed, leading to sharp corrections. The current environment demands that AI companies demonstrate real, durable earnings rather than promise. Investors should brace for a repricing as the market shifts from growth-at-any-price to a focus on fundamentals. The era of free money is over, and AI stocks must now play by the normal rules of valuation—or face the consequences.