‘AI is real, but valuations is bubble,’ Is the rally sustainable and what happens to Indian investors if it cracks?
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- Big Tech (Microsoft, Alphabet, Amazon, Meta) will spend close to $725 billion on AI in 2026, up from $410 billion the previous year, per Shashank Udupa of Vayu Capital.
- AWS, Azure, and Google Cloud are still growing 28 to 120 percent, per Udupa, underscoring that AI is driving real revenue growth for traditional cloud providers.
- Paresh N. Bhagat of Mangal Keshav Financial Services argues AI itself is not a bubble, but 'what may prove to be a bubble is the way certain AI-related stocks are being valued.'
- Indian markets already saw over ₹2 lakh crore in FII exits over four months, with the Nifty IT index dropping 6% on AI fears, per Udupa.
- Indian AI proxy companies have fallen around 7-8% as global AI valuation concerns spread, per Udupa, who maintains the long-term thesis stays intact with multiple zones of euphoria and falls coming.
- Domestic Institutional Investors (DIIs) are now absorbing most of the FII selling pressure, providing a cushion for Indian markets, per Udupa.
- South Korea would be the most affected country if bad news hits the AI sector, given its chipmaker exposure, per Udupa.
Why it matters: For Indian investors, the cushion is already thinning: DIIs are absorbing FII selling, but a US-led AI valuation unwind would trigger sharper selling—₹2 lakh crore has already exited and Nifty IT dropped 6%. Bhagat notes businesses with strong balance sheets like Microsoft and Alphabet tend to recover fastest, meaning the pain would concentrate in the most overvalued AI-linked names.
