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

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.