How The AI Bubble Is Being Masked Within Big Tech
Authored by Autumn Spredemann via The Epoch Times,
As artificial intelligence (AI) investment ramps up, some analysts are now drawing comparisons to the early “dot com” days of the internet and the market crash that followed.
It’s a deja vu moment for Wall Street: A revolutionary technology captures the imagination while capital floods in and valuations begin to put a high price on promises of a future that hasn’t arrived.
Now, as AI spending accelerates and a handful of mega companies dominate returns, financial industry insiders are asking whether the AI boom has crossed the line into market bubble territory—when the price of an asset exceeds its actual value.
Industries that have the most to gain—and lose—are reporting record earnings on AI. The top five companies on the S&P 500 are tech giants that are heavily invested in AI. Moreover, in the fourth quarter of 2024, 241 companies on the S&P 500 cited AI as part of their earnings—the highest number in a 10-year period, according to FactSet.
Investment experts say this is a potential problem: How much of these reported returns belong to AI and how much is bundled in with other earnings?
“Right now, stories about the future promise of AI are pushing stock prices higher. When those stories turn into earnings disappointments, prices will fall,” Paul Walker, author and owner of Fil Financial Corporation, told The Epoch Times.
“What most investors don’t realize is just how concentrated the market has become. The so-called magnificent seven have driven roughly 60 percent or more of recent gains in the S&P 500 and Russell 1000,” he said.
“In other words, people are far less diversified than they think. When those stocks stumble, panic spreads quickly, as investors dump index funds that are loaded with the same tech giants.”
The “magnificent seven” companies include Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla.
Some analysts believe the AI bubble will continue growing in 2026. Investing.com reported Capital Economics analyst Jonas Goltermann’s theory that the environment surrounding AI “now has many of the hallmarks of a bubble,” and includes “hyperbolic beliefs about AI’s potential within the industry and among investors.”
A recent J.P. Morgan analysis noted the majority of market bubbles follow a pattern and often begin with an “investor thesis” that the world is undergoing major changes.
“Believers build capacity to meet future demand. The bubble begins to form in part because credit is widely available. Decaying underwriting standards and increasing leverage cause a disconnect between economic fundamentals and market valuations. More and more investors join the crowd—until fundamentals finally prevail and the bubble bursts,” the analysis stated.
Apple announces upgrades to its artificial intelligence (AI) system, “Apple Intelligence,” during the annual Apple event at the company's corporate headquarters in Cupertino, Calif., on June 9, 2025. Apple is among the top five companies on the S&P 500 that are heavily invested in AI. Josh Edelson/AFP via Getty Images
Living in a Bubble
Comparisons have been made between the current level of AI investment and the conditions leading up to the dot com bust of 2000.
According to a December GIS report, Oracle’s stock price soared 36 percent in September, despite the tech giant’s reported earnings falling below expectations. The stock price shot up after Oracle announced it expected AI-driven cloud revenue to hit $144 billion by 2030. It was the biggest single-day stock increase since 1992, which added an estimated $250 billion to the company’s market share.
In the late 1990s, speculation and heavy funding of internet startup companies or dot coms pushed NASDAQ’s Composite Index from 751 in January of 1995 to more than 5,048 by March of 2000. However, with many companies failing to deliver on their promised returns, the market plummeted by more than 75 percent between March 2000 and October 2002. More than $5 trillion in market value was lost during that time.
“Are we in a phase where investors as a whole are overexcited about AI? My opinion is yes,” Sam Altman, CEO of OpenAI, told The Verge in August. “When bubbles happen, smart people get overexcited about a kernel of truth.”
Dan Buckley, chief analyst for DayTrading.com, said the current situation “doesn’t quite feel like 1999 yet, but it’s similar to 1998.”
OpenAI CEO Sam Altman speaks during the OpenAI DevDay event in San Francisco on Nov. 6, 2023. Justin Sullivan/Getty Images
“The real bubble typically forms after the technology proves that it matters, not before, as that’s what gets most investors off the sidelines,” he told The Epoch Times.
Buckley believes AI has “crossed that line,” making the current market phase more dangerous.
“Pricing can become even more stretched, and monetary and fiscal policy can become even more supportive of AI buildout. Governments are also getting involved, as they’re less sensitive to financial returns and see AI as a source of geopolitical power,” he said.
The amount of money corporations have spent hitching their wagon to AI futures is significant. Major “hyperscaler” tech companies spent $106 billion in capital expenditures in the third quarter of 2025 alone, according to a Dec. 18 report from Goldman Sachs.
Overall, large tech companies have spent an estimated $364 billion on AI this year, according to JDP Global.
Goldman Sachs observed that investors are becoming more cautious about where they’re putting their money.
“The past few months have seen the stock prices of AI hyperscalers diverge: Investors have rotated away from AI infrastructure companies where operating earnings growth is under pressure and where capex is being funded via debt,” the analysis said.
Goldman Sachs also said investors are opting for companies that demonstrate clear evidentiary links between their AI expenditures and revenues.
“There are some key similarities between AI and [the] dot com craze, both on the side of investors and corporations,” Pedro Silva, principal partner at Apex Investment Group, told The Epoch Times.
A billboard advertises an artificial intelligence company in San Francisco on Sept. 16, 2025. Billboards advertising AI companies are appearing throughout the city and along Interstate 80. Justin Sullivan/Getty Images
“From the investor side, people want to get in on AI just because they hear it on the news daily,” Silva said. “There is no real scrutiny of the valuations or possible future headwinds; if it says AI and it’s grown substantially, investors want to participate.”
He said it’s similar from the corporate perspective. “Companies have to spend on AI, regardless of whether they see an immediate or obvious return on investment,” Silva said.
“To not invest in AI as the leader of an organization seems like a dereliction of duty, but the application of the new technology is not always clear.”
Thinking Ahead
Buckley believes most of the reported return on investment with AI is based on vision versus cash flow.
“The productivity gains are genuine, even exceptional, in areas like coding, but the investment is ahead of the evidence,” he said. “There has generally been little hard disclosure on how much AI is monetized directly versus bundled into existing products or simply a matter of future promises.”
He noted that any market devaluations related to AI and how it impacts individuals largely depend on how their income and savings are linked to technology.
The tech sector alone now comprises 34 percent of the S&P 500, according to The Motley Fool. For the average American investor with a diversified portfolio, that means roughly one-third of their investment could be affected, for better or worse.
“This [AI] buildout is based on the belief that ‘scale equals control.’ A break in that narrative is what’s likely to bust spending rather than traditional cyclical pressures like declining margins, falling stock prices, or rising interest rates,” Buckley said.
“While a pullback in the AI space would reflect on [and] be felt on client statements, the bigger concern would be if it is perceived as a broader economic downturn,” he said.
Traders work on the floor of the New York Stock Exchange in New York City on Nov. 19, 2025. Michael M. Santiago/Getty Images
Silva warned that investors could misread a shrinkage of AI investment as something bigger and make hasty decisions.
Silva emphasized that the top five tech giants are not synonymous with the U.S. economy, but their oversized representation in S&P returns could give that impression, triggering a broader equity selloff.
Walker pointed out that, over longer periods, the stock market has still shown steady growth—even amid big changes. He stressed the importance of the bigger picture, because today’s market leaders can become “tomorrow’s case studies.”
“Instead of trying to predict crashes or pick the next AI winner, investors should build a risk-based portfolio and rebalance it,” Walker said. “If your plan calls for 40 percent stocks, market drops mean you buy more, not panic. When markets boom, you buy less. Discipline beats prediction every time.”