Key Points
- The AI-fueled stock market rally has many investors worried about a potential bubble.
- Big Tech is spending hundreds of billions on AI infrastructure, a classic sign of over-investment.
- However, today’s AI giants report strong profits, unlike many dot-com-era companies.
- The current rally, while strong, is not as extreme as some of the biggest historical bubbles.
As the artificial intelligence boom pushes the stock market to new records, the big question on everyone’s mind is whether we are living through another financial bubble. The S&P 500 jumped 16% in 2025, with a handful of AI-related stocks like Nvidia, Microsoft, and Google leading the charge. But history tells us the answer isn’t so simple.
One of the biggest red flags for a bubble is over-investment. Big Tech is currently committing to invest hundreds of billions of dollars in AI infrastructure. OpenAI alone has committed to spending over a trillion dollars, a shocking number for a company that isn’t even profitable.
However, experts point out that this is a common theme whenever a new, society-changing technology comes along. The same thing happened with railroads, electricity, and the internet. The infrastructure buildout might get ahead of itself for a while, but that doesn’t mean the technology itself is a fad.
When we look at the numbers, today’s AI rally is in its third year, with the tech-heavy Nasdaq 100 up about 130%. While that’s a substantial gain, it’s still not as extreme as some historical bubbles, which saw gains of over 240% on average.
Another key difference is the fundamentals. Unlike the dot-com era, today’s AI giants are actually making substantial profits. Companies like Nvidia and Meta are already reporting strong profits from their AI investments, which wasn’t the case for many of the speculative internet companies 25 years ago.
Perhaps the best defense against a bubble is that everyone is already discussing it. In December, a Bank of America poll found that investors identified an AI bubble as the largest “tail risk” to the market. This level of scrutiny and skepticism is actually healthy. It helps keep valuations from getting completely out of control and might just be the thing that prevents a catastrophic crash.
