Show Notes
Since 2008, every year, in addition to posting updated data on equity risk premiums, I have done two update papers each year. I write the first, on equity risk premiums, in March of each year, and the second, on country risk, in July. These papers are catch-all publications, reflecting everything that I know or have learned about each of these topics, mostly in the process of having to deal with them in corporate financial analysis and valuation. As a consequence, these are written for practitioners, not academics, and they are driven by pragmatism, not purity. My latest country risk update (for 2026) is now accessible and you can download the paper, if you are interested, at the link below:https://papers.ssrn.com/sol3/papers.cfm?abstract_id=7107638 In this session, I summarize the paper, starting with the drivers of country risk - politics, corruption, exposure to violence and the strength of the legal system - before moving on to measures of country risk - sovereign ratings and CDS spreads for default risk, country risk scores and country equity risk premiums. I also talk about how these country equity risk premiums come into play when valuing companies as well as in estimating project hurdle rates in corporate finance. I close with a discussion of currencies, and why done right, valuations should be currency invariant.Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/countryrisk2026.pdfBlog Post: https://aswathdamodaran.blogspot.com/2026/07/country-risk-drivers-measures-and.htmlPaper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=7107638Data:1. Country equity risk premiums: https://pages.stern.nyu.edu/~adamodar/pc/datasets/ctrypremJuly26.xlsx2. Riskfree rates, based on expected inflation: https://pages.stern.nyu.edu/~adamodar/pc/blog/DiffInflationRiskfree26.xlsx Learn more about your ad choices. Visit megaphone.fm/adchoices
More from Aswath Damodaran
The key reason that US equities have held their own this year, in the face of rising interest rates, is a surge in aggregated earnings, which some have attributed to the massive investments in AI cap ex. In this session, I start by updating my market views to October 1, by bringing in September's explosive rise in rates and updating my estimates for expected returns and equity risk premiums for US stocks. I then turn to the real focus of this session, which is looking at how the trillions being invested in AI cap ex are playing through income statements, balance sheets and cash flows for the AI builders (who are spending the money on the AI cap ex) and the suppliers of the AI architecture (chips, networking equipment, power, cooling and real estate. Across all publicly traded firms, AI cap ex has significantly bulked up balance sheets, with both book debt and equity rising, and at least in the aggregate, increased earnings, as the amortization of AI cap at the builders (which lowers earnings) is being swamped by the net income generated by the AI suppliers, from providing the ingredients. In the aggregate, US companies are generating less in free cash flows, and dividends and buybacks are growing far more slowly than earnings. I close with an assessment of the choices we face as investors, as the AI storm roils the waters.Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/MktandAI2026.pdfBlog post: https://aswathdamodaran.blogspot.com/2026/10/stock-prices-earnings-and-cashflows-ai.html Learn more about your ad choices. Visit megaphone.fm/adchoices
It is undeniable that AI has taken over business and investing conversations since ChatGPT's debut on November 30, 2022. In addition to pushing up the market capitalizations of the companies that supply its infrastructure (chips, power, electrical equipment), it has also given rise to the largest investment build-up in history, with $2 trillion spent so far on AI architecture, with more to follow. The debate about AI though has been stunted by people talking past each other, with advocates pointing to its potential market being "huge" and skeptics noting that the "massive" cap ex makes value creation impossible. I much confess that I find myself pulled in a dozen different directions, as the debate unfolds on multiple dimensions (open vs closed models, AI as tool or employee replacement, AI as good or bad for society). This session was really meant for an audience of one (me), and during the session, I try to develop a framework for making sense of AI as a business. In the process, I develop tools that I can use to judge whether Anthropic is worth $2 trillion and whether the hyperscalers can get sufficient payoff from their trillion in AI cap ex. I hope that you find my framework and tools useful.Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/AIBusiness.pdfBlog Post: https://aswathdamodaran.blogspot.com/2026/08/ais-bar-mitzvah-moment-from-hype-hope.htmlSpreadsheet: https://pages.stern.nyu.edu/~adamodar/pc/blog/BreakevenEnterprisevalue.xlsx Learn more about your ad choices. Visit megaphone.fm/adchoices
If you have been reading the financial press or tracing social media, the story of Leo Aschenbrenner and the rise and fall of his hedge fund, Situational Awareness, has been widely covered, with different views on causes. I use the story of this fund, created to monetize Leo's vision of AI as an immensely successful disruption in the near term, to talk about investment conviction, words often used as positives, when talking about investing. I look at the continuum of conviction from absolute certainty to complete mush, as well as the forces that cause variations in conviction across investments as well as across investors. I then follow up and argue that conviction drives two major investment choices - the sizing of an investment and how much leverage you take, with stronger (weaker) conviction leading to more concentrated (more diversified) portfolios with higher (lower) leverage. I end the session by drawing three lessons from this story: (1) that investment actions (on concentration & leverage) that are out of sync with investment conviction is deadly, (2) that momentum is a force that can upend conviction and (3) that as investor, you will be better off trusting humble money over smart money.Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/LessonsfromLeo.pdf Learn more about your ad choices. Visit megaphone.fm/adchoices
In this session, I talk about two long-running stories in markets, the first relating to a SEC proposal to replace quarterly with semi-annual reporting for US firms and other to Kevin Warsh's (the new Fed chair) view that the Fed should speak less and provide less guidance. The common themes in both stories is that they remove "news" that the market has become to receiving and using to set prices, and the advocacy and opposition to both proposals share commonalities. Advocates for the changes argue that removing quarterly reporting will make makes less "short term" and that reducing Fed guidance will also reduce the gaming around Fed actions. Opponents to the changes point to the loss of information that markets can use to set prices, and increased volatility in markets.I see shades of grey. I do like access to quarterly reports in my investing, since they allow me to update my valuations more frequently, but I also believe that earnings reports have become bulky and filled with distractions. Rather than reducing the frequency of reporting, I would prefer slimmer reports that have less management guidance and prognostications.As for the Fed, I do think it is healthy for investors to step back from the post-2008 view of the Fed as an all-powerful institution that can set interest rates and alter the trajectory of the economy. Neither perception is based in reality, and a world where we see less and hear less from the Fed will be a healthier one.Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/quarterly.pdfBlog post: Learn more about your ad choices. Visit megaphone.fm/adchoices
As debate has raged about whether SpaceX is worth $ 2 trillion plus, and how much Anthropic and OpenAI will be priced at, there is a parallel question that has created just as much heat on whether these stocks should be included in the S&P 500. There are many who seem to be arguing against inclusion, with three different groups (and agendas) at play - active investing professionals who arguing that inclusion will make the S&P 500 an (even more) flawed investment vehicle for passive investors, academics and experts suggesting that inclusion would expose small investors and retirees to risks that they should not be taking (of over priced and money losing companies) and politicians who feel that inclusion will enrich the billionaire founders of these companies. In truth, the index inclusion effect has weakened over time, even as passive investing has surged, and the notion that small investors are uninformed and need protection from their mistakes is condescending and wrong. There is little benefit that these companies (SpaceX, OpenAI and Anthropic) will gain from being included in the index, and that the S&P 500 needs these companies in the index to preserve its standing as an index that tracks large cap US equities. Slides: https://pages.stern.nyu.edu/~adamodar/pdfiles/blog/Indexology.pdfBlog Post: https://aswathdamodaran.blogspot.com/2026/06/indexology-index-mechanics-and.html Learn more about your ad choices. Visit megaphone.fm/adchoices