Lessons from History Regarding Ongoing Talk of an AI Bubble

As enthusiasm around AI continues to propel share prices to record levels, a growing number of investors are asking a familiar question: Is the market heading toward another speculative bubble, or is this simply the early stage of a lasting shift? 

History suggests the answer is rarely straightforward. 

U.S. stocks posted another strong year in 2025, with the S&P 500 surging 16%. Much of that advance came from companies most closely tied to AI, including Microsoft, Broadcom, Nvidia, and Alphabet. Their gains have helped push major indexes to record levels, but they have also intensified concerns about how much money is being poured into AI infrastructure. 

Capital spending plans from Amazon, Microsoft, Meta, and Alphabet are projected to jump by 34% over the next year, reaching an estimated $440 billion combined, based on Bloomberg data. 

Overinvestment is a pattern that has appeared during nearly every major technological breakthrough, according to Brian Levitt, chief global market strategist at Invesco. He notes that similar concerns arose during the expansion of railways, the spread of electricity, and the rise of the internet. Excess capacity can emerge, he argues, without invalidating the long-term value of the technology itself. 

Even so, rising valuations are hard to ignore. The S&P 500 has now logged three consecutive years of double-digit gains, prompting questions about how much room remains for further advances. A small cluster of AI-linked companies now represents close to 30% of the index, which means a sharp pullback in those stocks would have an outsized effect. 

According to Cetera Financial Group CIO Gene Goldman, market bubbles typically burst during broader downturns. He does not see signs of an imminent bear market. “Without that backdrop, a dramatic collapse is less likely,” he said. 

Comparisons with past bubbles offer mixed signals. Research from Bank of America shows that major equity manias since 1900 tended to last a little over two and a half years and produced average gains of more than 200% from bottom to peak. The current rally linked to AI is entering its third year, with the S&P 500 up roughly 79% since late 2022 and the Nasdaq 100 rising about 130%. 

Analysts caution that investors who exit too early risk missing the strongest phase of a rally. They suggest balancing exposure by adding undervalued assets, such as UK markets or energy stocks. 

Another area drawing attention is market concentration. The ten largest companies now make up around 40% of the S&P 500, a level not seen in decades. While that concentration unsettles some investors, historians point out that earlier periods saw similar dominance by leading industries. At the start of the 20th century, railroad companies alone accounted for well over half of U.S. market value. 

Fundamentals also differ from earlier bubbles. Unlike the late 1990s, many of today’s leading AI firms are already profitable and carry lower debt relative to earnings. Companies such as Meta and Nvidia are reporting tangible revenue growth tied to AI products. 

Still, rising borrowing needs could test investor confidence. Oracle’s recent bond sale was followed by a sharp drop in its stock, highlighting sensitivity to credit risk. Analysts estimate Oracle, Meta, and Alphabet will collectively need $86 billion this year alone. 

Valuation measures show the market trading at elevated levels, though not yet matching the extremes of the early 2000s. During the dot-com peak, some technology stocks traded at hundreds of times earnings. Current multiples, while high, remain well below those records. 

Perhaps most telling is the level of scrutiny. Mentions of a potential AI bubble surged late last year, fueled by warnings from high-profile investors and central bankers. Surveys show that many fund managers view AI-related stocks as the market’s most crowded trade. 

That scrutiny, analysts say, may act as a stabilizing force. Unlike the unchecked optimism of the dot-com boom, today’s debate includes serious questions about returns, debt, and long-term demand. 

For investors who are becoming overly concerned about a growing AI “bubble,” smaller AI firms like GlobalTech Corp. (OTC: GLTK) could offer a hedge if due diligence reveals that the companies’ fundamentals meet the investors’ portfolio criteria. 

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