First, What’s Driving the AI Boom?

Since the launch of models like ChatGPT and the explosion of generative AI, we’ve seen:

• Skyrocketing demand for computing power (GPUs, data centers, cloud infrastructure).
• Surging interest in AI-native software across productivity, design, healthcare, coding, and more.
• Unprecedented capital allocation from tech giants (Microsoft, Google, Amazon) and venture capitalists alike.
• Public excitement as people begin using AI in real life, every day.

All this has culminated in huge stock market profits in AI-cored or even AI-peripherally related companies:

• Nvidia (NVDA), perhaps the poster child of the AI rally, is up more than 200% in just the last year at times.
• AI startups are overnight achieving billion-dollar valuations.
• Even firms with nebulous AI strategies (such as dumping “AI” into investor presentations) are experiencing stock spikes—a telltale sign of a bubble.

astructure (cloud, chips, data pipes) is being built today. The actual profit boom might still be years out, so high valuations today for the market leaders creating the infrastructure are understandable.

Why Others Believe It’s a Bubble

In spite of all the hope, there are some warning signs that cannot be overlooked:

1. Valuations Are Very Extended

A lot of AI stocks are priced at Price-to-Earnings ratios that are illogical, particularly if growth decelerates by even a fraction. Nvidia, for instance, is priced to perfection. Any miss in earnings could lead to violent falls.

2. Herd Mentality & Speculation

We’ve seen this before—in dot-com stocks in the late ‘90s, or crypto in 2021. When people invest because others are, not because of fundamentals, the setup becomes fragile. A single piece of bad news can unwind things quickly.

3. Winner-Takes-Most Dynamics

AI has huge scale economies, so a handful of companies can potentially grab everything (such as Nvidia, Microsoft, etc.), but there are hundreds of others—small caps in particular—that could be left in the dust. That is risk for individual investors pouring into “AI-themed” ETFs or microcaps.

4. Too Much Emphasis on Frenzy, Not ROI

Most firms are putting “AI” on earnings calls and press releases simply to get on the bandwagon. But not every AI is revenue-producing, and some won’t be. If firms can’t effectively monetize their AI strategies, the market could correct hard.

So… Is It a Bubble?

Perhaps it’s both.

• A well-known Scott Galloway quote captures it well:
• “Every bubble starts with something real.”

AI exists. It’s revolutionary. But the rate of investor hopes might be outrunning the rate of real-world deployment.

Over the near term, we could witness volatility, sector corrections, or even mini-bubbles burst (particularly for loss-making or overhyped companies). But in the long term, AI is set to become one of the greatest secular trends of the 21st century—comparable to electricity, the internet, and mobile computing.

Last Thought

Ask yourself this:

• Will you expect to see AI applied to every business, every industry, and almost every job in the coming decade?
• Will you expect that some firms will not change, while others will drive the next generation of innovation?

If the answer is yes, then the AI boom has a solid fundamental argument. But as with all big technology changes, timing and picking are key. Not all stocks will be a winner—even if there is an AI boom.”.