Keeping on bullish – Yardeni’s thoughts on why AI hasn’t peaked
This week, the market’s most irrepressible bull, Ed Yardeni published another blog promoting his bullish thesis entitled, Peak Fear? Peak Yields? Peak Earnings? Peak AI?, alongside co-author Elias Griepentrog.
The headline gives away the framework because Yardeni and Griepentrog immediately answer the four questions in order:
Peak Fear? Yes.
Peak Yields? Maybe.
Peak Earnings? No.
Peak AI? No.
Let’s look at each argument in turn.
“Peak Fear? Yes.”
Yardeni begins by contrasting his own bullish position with the very bearish views of permabears Ray Dalio and Jeremy Grantham. Dalio warns about a U.S. debt crisis, while Grantham warns of an historic equity/artificial intelligence (AI) “super-bubble.”
Yardeni’s contrarian point is essentially that this abundance of worry is itself constructive. Markets climb walls of worry, while excessive optimism is generally more dangerous.
If I am to take something away from Yardeni’s opening argument, it is that ‘peak fear’ is evident, but that doesn’t mean the risks are imaginary, it means investors are already intensely focused on them.
“Peak Yields? Maybe.”
This part is also publicly visible. Yardeni notes 10-year Treasury yields have retreated to 4.64 per cent from 4.74 per cent, helped by falling oil prices and Treasury Secretary Scott Bessent’s attempts to calm the bond market through larger Treasury buybacks, intervention in the Japanese Yen and the suggestion he’ll use the US$1 trillion Treasury General Account to buy bonds if necessary.
Yardeni regards the roughly 4 per cent – 5 per cent yield on 10-year Treasuries as an “old normal” range consistent with a healthy economy, rather than necessarily evidence of impending financial trouble.
The “maybe” is important. Yardeni isn’t calling the top in yields, but he is suggesting the combination of likely policy intervention, lower oil and market positioning raises the possibility.
And, I should add, that sits directly alongside his August 18 argument that an AI-led investment and economic boom itself is one reason yields have risen – strong investment demand and economic activity aren’t ordinarily conditions associated with collapsing long-term yields.
“Peak Earnings? No.”
Yardeni has written extensively about FEMO versus FOMO (Fabulous Earnings Momentum versus Fear Of Missing Out) in recent months.
S&P 500 forward earnings have risen 24.9 per cent year-to-date (YTD) while the index has risen only 12.1 per cent, causing the forward price-to-earning (P/E) ratios to decline nearly 10 per cent.
Yardeni’s central thesis is that market gains have been, and will continue to be, driven by FEMO – rather than FOMO.
At this juncture, it’s worth noting in early August, Yardeni raised his own S&P 500 earnings-per-share (EPS) forecasts dramatically:
- 2026: $330 → $375
- 2027: $375 → $415
He also estimated 2026 and 2027 profit margins of 16.7 per cent and 16.9 per cent respectively.
I have recently highlighted Alphabet and Amazon’s mark-to-market gains and Meta’s tax reversal inflate the headline 2026 figures. Importantly, Yardeni acknowledges that, but argues that underlying earnings growth remains exceptionally strong even after stripping out those effects.
That explains “Peak Earnings? No.” Yardeni also posits that earnings estimates are still being revised upward faster than stock prices.
As an aside, Barron’s recently discussed Yardeni’s FEMO argument in its own examination of the AI-bubble debate. In that article, it contrasted Yardeni’s view with the bears who think extraordinary AI spending is unsustainable.
“Peak AI? No.”
This is arguably and probably the most interesting part of Yardeni’s note.
Yardeni distinguishes between AI-stock valuations and the AI capital-spending cycle. He acknowledges “AI fatigue” and uncertainty about the eventual return on hundreds of billions of dollars in infrastructure spending, but argues that the spending itself is unquestionably underway.
He notes;
- core capital-goods orders rising 12.5 per cent year over year, the strongest since November 2021;
- particularly strong demand for machinery associated with data centres
- unfilled orders for computers and electronic products reaching a record $157.4 billion;
- industrial companies – not merely semiconductor stocks – benefiting from the AI infrastructure build-out.
Now, that doesn’t sound like an unquestionably bullish stance – that “AI stocks can only go up.”
Yardeni seems to argue the AI capital expenditure (capex) and productivity cycle hasn’t peaked yet, regardless of whether individual AI stocks occasionally become overvalued.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
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