(Bloomberg) — As the artificial intelligence trade continues to push the stock market to new highs, investors are increasingly asking if we’re living through another financial bubble that’s destined to burst.
The answer isn’t so simple, at least according to history.
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The S&P 500 Index jumped 16% in 2025, wiht AI winners Nvidia Corp., Alphabet Inc., Broadcom Inc. and Microsoft Corp. contributing the most. But at the same time, concerns are mounting about the hundreds of billions of dollars Big Tech has pledged to spend on AI infrastructure.Capital expenditures from Microsoft, alphabet, Amazon.com Inc. and Meta Platforms Inc. are expected to rise 34% to roughly $440 billion combined over the next year,according to data compiled by Bloomberg.
Simultaneously occurring, OpenAI has committed to spending more than $1 trillion on AI infrastructure, an eye-popping number for a closely held company that isn’t profitable.But perhaps even more troubling is the circular nature of many of its arrangements, in which investments and spending go back and forth between OpenAI and a few publicly traded tech giants.
Throughout history, over-investment has been a common theme when there’s a technological advancement that will transform society, according to Invesco chief global market strategist Brian Levitt, who pointed to the development of railroads, electricity and the internet. This time may be no different.
“At some point the infrastructure build may exceed what the economy will need over a short period of time,” he said. “But that doesn’t mean that the rail tracks weren’t finished or the internet didn’t become a thing, right?”
Still, with equity valuations creeping up and the S&P 500 just posting its third straight year of double-digit percentage gains, it makes sense that investors are growing concerned about how much upside is left and how much market value could be lost if AI doesn’t live up to the hype. Nvidia, Microsoft, alphabet, Amazon.com, Broadcom and Meta platforms account for almost 30% of the S&P 500, so an AI selloff would hit the index hard.”A bubble likely
Fundamentals
Asset bubbles tend to be much harder to spot in real time than after the fact because fundamentals are usually at the center of the debate, and the metrics investors focus on can be fluid, according to TS Lombard economist Dario Perkins.
“It is easy for tech enthusiasts to claim that ‘it’s different now’ and that essential valuations will never be the same again,” he said.
But some fundamentals are always crucial.Such as, compared with the dot-com bubble, today’s AI giants have lower debt-to-earnings ratios than, say, WorldCom Inc. And companies like Nvidia and Meta Platforms are already reporting strong profit growth from AI, which wasn’t necessarily the case in the speculative era 25 years ago.
The potential for credit risk in the AI trade is making some investors nervous. After Oracle Corp.sold $18 billion in bonds on Sept. 24, the stock plunged 5.6% the next day and it’s down 37% since then. Meta, Alphabet and Oracle will need to raise $86 billion combined in 2026 alone, according to an estimate by Societe Generale.
Valuations
The S&P 500’s valuation is the highest it’s ever been accept for the early 2000s, at least according to its cyclically adjusted price-to-earnings ratio, a metric invented by economist Robert Shiller that divides a stock price by the average of its inflation-adjusted earnings over the past 10 years.