No one sells if they think there's other suckers who'll buy later. Everyone is ultimately trying to get out as late as possible with all the money - hence "the market can remain irrational longer then you can remain solvent" being evergreen.

#3 isn't quite right because a rise in inflation changes the discount rates that are applied to future cash flows in the equity valuation process. And on top of that, for risk-averse investors the fundamental uncertainty we are living in also will alter their discount rates independently of monetary effects. The first two are true enough at least under certain definitions of what an "AI-related company" is.

(source: I am also an economist who specializes in financial economics and corporate finance)

The only thing I would add to your point #3 is this:

* Given the same profit margin, higher overall prices mean that firms will have higher profits.

* The value of an equity is the discounted sum of all future profits.

That is, stocks are a hedge against inflation. Investors are willing to pay "unreasonable" prices today because they expect that increased future cashflows will cause the price to become reasonable.

> Firms are basically Equity+Debt, and because inflation wipes out the value of Debt, then the value of Equity mechanically increases

I don’t think this holds water as an explanation. The equity risk premium is basically zero.

This is a good analysis. I was wondering the same and you nailed it.