Damodaran says AI's biggest winner may still be hidden

A lot of investors think the AI race already has its champions. Aswath Damodaran is asking a more uncomfortable question: what if the real winner has not arrived yet?

That matters in India too. Many retail investors now own US tech through mutual funds, ETFs, or global funds. Even those who do not own foreign shares feel the mood when tech stocks rise or fall.

Damodaran’s warning is simple. The companies selling the shovels are making money now. But the company that builds the biggest business on top of AI may still be hiding in plain sight.

Nvidia may not be the final winner

Nvidia has become the face of the AI boom because it sells the chips that power it. Data centres, cloud firms, and AI labs need those chips in huge numbers.

That demand has created enormous wealth. It has also trained investors to see AI through one narrow window: infrastructure.

Damodaran argues that this view misses the bigger story. AI infrastructure is like building a giant factory. Chips, servers, power, cooling, and data centres form the walls and machines.

But factories need products. They need customers. They need profits that last after the excitement cools.

That is where the real test begins. The market has already found many infrastructure winners. The next big prize may sit with companies that use AI to sell services people actually need.

The Amazon lesson returns

Damodaran compares today’s AI boom with the internet boom. Back then, investors loved the companies building the internet’s pipes and switches.

Cisco looked unbeatable for a while. Yet Amazon became one of the defining businesses of that era.

The lesson is not that Nvidia will fail. The point is subtler. Early winners in a technology boom do not always become the biggest long-term value creators.

For Indian investors, this is a useful pause button. A stock can be a wonderful company and still be priced for perfection. That means even a small disappointment can hurt.

Many families now invest monthly through SIPs. Some of that money reaches global technology stocks through fund portfolios. So this is not only a Wall Street debate.

If a ₹5 lakh portfolio has 20 percent in global tech funds, ₹1 lakh depends partly on this cycle. A 10 percent fall in that slice means a ₹10,000 hit. That may not ruin anyone, but it stings.

AI’s biggest risk is jobs

The sharper part of Damodaran’s argument is not about stock prices. It is about workers.

He says the most bullish AI forecasts carry a dark assumption. If AI becomes as large as some estimates suggest, white-collar jobs could face serious damage.

He cited a $26 trillion AI market estimate and questioned what it would imply. In his view, such a number would need massive replacement of professional work.

Think of lawyers, bankers, consultants, coders, writers, analysts, and journalists. These are not factory-floor jobs. These are the middle-class careers many Indian families spend years funding.

That is why the AI story feels different from earlier tech cycles. Earlier automation first hit repetitive physical work. AI is walking straight into offices.

For a young professional paying a home loan EMI, this matters more than a stock chart. Better productivity sounds good. But job insecurity can change household spending overnight.

There is another problem. If too many people lose income, who buys the AI-powered products later? Markets often celebrate cost cuts first. Economies deal with the second-order damage later.

Retail investors need patience

Damodaran does not expect the most extreme scenario. He does not think AI will wipe out half of white-collar work. He also does not dismiss AI as empty hype.

That middle path is harder for investors. It means AI will create winners, losers, and many expensive mistakes.

The market often hates that kind of nuance. It prefers simple stories. Buy chips. Buy cloud. Buy anything with AI in the investor presentation.

But serious investing usually begins where simple stories end. The question is not whether AI is important. It clearly is. The question is who captures the profit.

OpenAI changed public imagination around AI. Nvidia supplied the muscle. Data centre companies built capacity. Yet the most durable business may emerge somewhere else.

It could be a healthcare company using AI to cut diagnosis time. It could be a software firm that changes how small businesses work. It could be a company that is not listed yet.

That is why retail investors should be careful with chase trades. If a stock has already run hard, future gains need even bigger proof.

In India, this also matters for IT services. AI can help firms improve margins and delivery speed. But it can also reduce billing for routine work.

Clients may ask why they should pay the same for tasks that AI now handles faster. That pressure can affect hiring, salary growth, and campus placements.

So the AI boom has two faces. It can lift productivity and create new companies. It can also unsettle the very workers who form the consumer class.

The market is broader than AI

Damodaran also points to a recent market clue. The AI trade has cooled in parts, yet broader markets have not collapsed.

That suggests investors may be giving AI too much credit for the whole rally. Other sectors, earnings trends, rates, and liquidity still matter.

For Indian readers, this is familiar. Markets rarely move because of one story alone. Bank earnings, crude oil, the rupee, RBI policy, and global rates all feed the same machine.

The danger comes when investors turn one theme into a religion. That happened with dotcom stocks. It happened with clean energy phases. It can happen with AI too.

The sensible approach is not to avoid AI. That would be like ignoring electricity in the early 20th century. But investors must separate adoption from valuation.

A great technology does not automatically make every related stock a great investment. Price matters. Timing matters. Cash flow matters even more.

Damodaran’s larger message is worth taking seriously because it cuts through the excitement. The AI factory is being built at breathtaking speed. But the real money will come only if useful products roll out, customers pay, and workers find a place in the new order. For ordinary investors, the next few years will test patience more than courage.