Are we in an AI bubble?

Massive hype around AI has helped power US stock markets to new all-time highs, with the top AI companies responsible for ~80% of all gains in US stocks in 2025, per a recent estimate.

But investors are growing increasingly concerned that recent AI fever could develop into a more dangerous condition: irritable bubble syndrome.

Last week, every member of the Magnificent 7 biggest companies, except for Alphabet, posted losses amid fears of an AI bubble, with Microsoft (-7%), Amazon (-6%), and Nvidia (-4%) staring down the biggest reductions in stock value.

• Other major players in the AI industry also saw major declines last week, including Oracle (-11%), AMD (-16%), and Micron (-16%).

There are some positive signs. The AI stock losses came despite a blockbuster earnings report from Nvidia on Wednesday, which revealed 60+% annual increases in sales and profits last quarter. "There's been a lot of talk about an AI bubble," Nvidia CEO Jensen Huang said on the earnings call. "From our vantage point, we see something very different."

The arguments

Along with Huang, many other prominent AI leaders say fears of a bubble are overblown, and that the technology is simply in a major boom cycle due to excitement over its potential.

• JPMorgan Chase executive Mary Callahan Erdoes on Thursday called the idea of an emerging AI bubble "a crazy concept."
• "Right now, if you look at demand and supply and what’s going on and multiples against growth, it doesn’t look like a bubble at all to me,” prominent Silicon Valley investor Ben Horowitz said earlier this month.

On the other hand: Last week’s stock market rout indicates a growing number of investors have serious doubts about what’s going on under the AI industry’s hood.

Many experts and analysts note that Silicon Valley is taking on massive amounts of debt on the assumption that massive new revenues from AI will cover the tab.

• But if the market for AI services was to slow even a little, the situation could quickly turn many of the new, expensive AI data centers—and financed debt—into essentially worthless commodities.
• Critics also note how the leading AI companies are increasingly buying products, power, and services from one another, driving up their valuations in a circular loop that doesn’t reflect organic demand.

Looking ahead…At the core of the AI bubble debate is one major question: will all the spending on chips and research eventually lead to big enough profits to justify the huge outlays?

Morgan Stanley analysts estimate that Big Tech companies will spend $3 trillion in AI infrastructure investment through 2028, with their own cash flows only projected to cover half of that.

📊 Flash poll: In your opinion, is the US economy in the middle on an AI bubble?

• Yes
• No
• Unsure/other