As the artificial intelligence sector continues to drive the stock market to new heights, investors are increasingly questioning whether we are experiencing another financial bubble poised to burst.
The answer is not straightforward, at least according to historical context.
The S&P 500 Index surged by 16% in 2025, with AI-related companies like Corp., Inc., Inc., and Corp. making the most significant contributions. Meanwhile, worries are growing regarding the hundreds of billions of dollars that Big Tech has committed to spending on AI infrastructure. Data compiled by Bloomberg indicates that capital expenditures from Microsoft, Alphabet, .com Inc., and Inc. are projected to increase by 34% to approximately $440 billion in total over the coming year.
In the meantime, OpenAI has pledged to spend over $1 trillion on AI infrastructure, a staggering figure for a privately held company that isn’t profitable. However, perhaps even more concerning is the of many of its agreements, where investments and expenditures flow between OpenAI and several publicly traded tech giants.
According to Brian Levitt, Invesco’s chief global market strategist, over-investment has been a recurring theme throughout history during technological advancements that reshape society, such as the development of railroads, electricity, and the internet. This time could be no exception.
He stated, “At some point, the infrastructure development might surpass the economy’s short-term requirements. But that doesn’t mean the railroad tracks weren’t completed or the internet didn’t become a reality, right?”
Nonetheless, as equity valuations gradually rise and the S&P 500 has just recorded its third consecutive year of double-digit percentage gains, it’s understandable that investors are becoming worried about the remaining upside potential and the market value that could be lost if AI fails to meet expectations. Nvidia, Microsoft, Alphabet, Amazon.com, Broadcom, and Meta Platforms make up nearly 30% of the S&P 500, so an AI selloff would severely impact the index.
Gene Goldman, Chief Investment Officer at Cetera Financial Group, who doesn’t think AI stocks are in a bubble, stated, “A bubble typically bursts during a bear market. We simply don’t anticipate a bear market in the near future.”
Here’s how today’s AI boom stacks up against previous market bubbles.
Pace, Length
A straightforward method to assess if the AI-driven tech rally has gone too far or too quickly is to compare it with past bull markets. Research by strategist Michael Hartnett reveals that 10 equity bubbles worldwide since 1900 averaged just over two and a half years in duration, with a trough-to-peak increase of 244%.
In contrast, the AI-driven rally is in its third year, with the S&P 500 increasing by 79% since the end of 2022 and the technology-heavy 100 Index surging by 130%.
Although it’s challenging to derive conclusions from the data, Hartnett advises investors not to exit the stock market even if they think it’s in a bubble, as the final phase of a rally is usually the most rapid, and missing out would be costly. He suggested that one hedging approach is to invest in undervalued assets such as UK stocks and energy companies.
Concentration
Presently, the 10 largest stocks in the S&P 500 make up approximately 40% of the index, a concentration level not witnessed since the 1960s. This has dissuaded some investors, including seasoned Wall Street researcher Ed Yardeni, who in December that recommending an overweight position in tech stocks is no longer justifiable.
Market historians contend that despite the concentration appearing extreme compared to recent times, there are historical precedents. Paul Marsh, a professor at London Business School who analyzed global asset returns over the past 125 years, states that top stocks as a proportion of the US market were at comparable levels in the 1930s and 1960s. Marsh notes that in 1900, 63% of the US market value was linked to railroad stocks, whereas technology accounted for 37% by the end of 2024.
Fundamentals
According to Dario Perkins, an economist at TS Lombard, asset bubbles are far more difficult to identify in real time than in hindsight because fundamentals typically lie at the heart of the discussion, and the metrics investors focus on can be changeable.
He stated, “Tech enthusiasts readily assert that ‘it’s different now’ and that fundamental valuations will never be the same.”
However, certain fundamentals always hold significance. For instance, when compared to the dot-com bubble, today’s AI giants have lower debt-to-earnings ratios than, for example, WorldCom Inc. Companies such as Nvidia and Meta Platforms are already reporting robust profit growth from AI, which wasn’t necessarily the case during the speculative period 25 years ago.
The potential for in the AI sector is causing unease among some investors. Following Corp.’s sale of $18 billion in bonds on September 24, the stock plummeted by 5.6% the following day and has declined by 37% since then. An estimate indicates that Meta, Alphabet, and Oracle will need to raise a combined $86 billion in 2026 alone.
Valuations
At least based on its cyclically adjusted price-to-earnings ratio, the S&P 500’s valuation is the highest it has been since the early 2000s. This metric, devised by economist Robert Shiller, divides a stock’s price by the average of its inflation-adjusted earnings over the past 10 years.
Bullish investors maintain that although market valuations are rising due to technology, the rate of increase is much slower than during the dot-com era. At one point in 2000, Inc. was valued at over 200 times its earnings over the previous 12 months, whereas Nvidia is currently valued at less than 50 times.
Richard Clode, a fund manager at Janus Henderson, states that stock prices become disconnected from earnings growth in an environment where there’s no discussion about valuations. He mentioned, “We aren’t observing that at present.”
Scrutiny
Discussions about a possible stock bubble were ongoing throughout the year but intensified notably in November and December due to from investor Michael Burry and the . Data compiled by Bloomberg shows that over 12,000 stories in November mentioned the phrase ‘AI bubble,’ approximately equivalent to the total for the preceding ten months.
A December poll by Bank of America revealed that investors view an AI bubble as the biggest ‘tail risk’ event. More than half of the respondents stated that the Magnificent Seven tech stocks were the most overcrowded trade on Wall Street.
Venu Krishna, head of US equity strategy at , stated, ‘This stands in contrast to the dot-com bubble, where there was ‘total excitement about the internet revolutionizing everything.’ As debt issuance increases, questions regarding whether AI investments will yield returns are growing.’
He stated, ‘I wouldn’t dismiss it, but generally, I believe that scrutiny is beneficial. In fact, that scrutiny is what will prevent extreme actions like a crash.’