AI Anchor Framework

Anchoring AI Capabilities in Market Valuations: The Capability Realization Rate Model and Valuation Misalignment Risk

The paper "Anchoring AI Capabilities in Market Valuations: The Capability Realization Rate Model and Valuation Misalignment Risk" introduces a novel framework to understand how artificial intelligence (AI) capabilities influence equity market valuations, especially during periods of speculative hype. The authors propose the Capability Realization Rate (CRR) model, a metric to quantify the gap between a company's potential AI capabilities and its realized business performance.

Key Contributions

• CRR Model: Defines a quantifiable metric—Capability Realization Rate—as the ratio of realized AI-driven business value to the potential capability. This model provides a structured way to assess valuation alignment.
• Anchoring Effect Analysis: Investigates how investor expectations are anchored to high-profile AI milestones (e.g. OpenAI’s valuation, NVIDIA’s chip demand), often leading to valuation premiums unbacked by current fundamentals.
• Market Data Study (2023–2025): Examines stock performance across sectors and firm types during the generative AI boom, identifying clear disparities in valuation trends based on perceived AI exposure.
• Case Studies: Presents in-depth analyses of OpenAI, Adobe, NVIDIA, Meta, Microsoft, and Goldman Sachs to illustrate the range of CRR outcomes and market reactions.
• Policy Recommendations: Suggests actions for regulators and industry stakeholders to improve transparency, reduce speculative mispricing, and promote sustainable AI integration into economic value.

The study reveals that companies with high AI potential but low realization (low CRR) often receive inflated valuations due to investor anchoring, while firms that convert AI into tangible results are more likely to justify their market premiums. The authors argue for the use of CRR as a practical lens to detect valuation misalignment risk in AI-driven markets.

Citation

You can cite this work as follows:

@article{fang2025anchoring,
  title={Anchoring AI Capabilities in Market Valuations: The Capability Realization Rate Model and Valuation Misalignment Risk},
  author={Fang, Xinmin and Tao, Lingfeng and Li, Zhengxiong},
  journal={arXiv preprint arXiv:2505.10590},
  year={2025}
}