Enthusiasm about artificial intelligence (AI) has driven markets to record highs this year, but this rapid rise has sparked concerns about a potential bubble. Since OpenAI launched ChatGPT in 2022, AI has dominated market themes, fueling investor optimism about a transformative AI boom and prompting massive investment in tech stocks, pushing valuations to historically high levels. Some analysts and economists see these soaring valuations as warning signs of a bubble—where stock prices exceed their intrinsic value, leading to an unsustainable rally and eventual sharp downturn, reminiscent of the dot-com bubble burst in 2000. Kristalina Georgieva, managing director of the IMF, highlighted that global equity prices are surging, approaching levels last seen during the internet boom 25 years ago, and warned that a sharp correction amid tightening financial conditions could harm global growth. JPMorgan Chase CEO Jamie Dimon acknowledged AI’s reality and long-term payoff but cautioned that much current investment may be wasted. He expressed greater worry about a significant stock market decline within the next six months to two years than is commonly reflected in market sentiment, emphasizing elevated uncertainty fueled also by geopolitical tensions and government debt. Major tech firms like Meta, Microsoft, and Amazon have invested hundreds of billions in AI-related infrastructure, supporting robust earnings that justify high valuations and stock rallies. Yet, some investors question whether these investments will yield sufficient returns, raising doubts about sustainability and potential fallout from a steep market correction. Concerns intensified when top AI players like Nvidia and OpenAI engaged in circular financing deals, reminiscent of patterns seen in past bubbles, according to Goldman Sachs strategists who urge investors to maintain diversification despite not labeling the market a bubble yet. Demand for AI-related assets remains strong; for instance, OpenAI’s recent partnership with chipmaker AMD sent AMD shares up nearly 24%.

Although comparisons to the dot-com bubble abound, current tech giants are profitable and delivering strong earnings, unlike the unprofitable early-stage firms that fueled the 1990s tech bubble, noted Eric Freedman of US Bank Asset Management. Mike Mullaney of Boston Partners described the situation as “bubble light” territory, with valuations and flows signaling risk but investor sentiment not yet reaching extreme levels, leaving room for the rally to continue. AI’s growing dominance is evident as a handful of tech giants—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—account for 55% of the S&P 500’s gains since late 2022, increasing their weight in retirement portfolios but also exposing investors to risk if valuations collapse. The Bank of England recently warned that stretched equity valuations, especially for AI-focused tech stocks, combined with market concentration, heighten vulnerability to a downturn if AI expectations falter. The current environment evokes memories of past bubble warnings. In 1996, Fed Chair Alan Greenspan warned of “irrational exuberance, ” though the dot-com crash came four years later. Similarly, Fed Chair Jerome Powell recently called stocks “fairly highly valued, ” echoing his predecessor’s caution. Ed Yardeni of Yardeni Research suggested the market might be revisiting the irrational exuberance of the late 1990s tech bubble, yet noted that stronger-than-expected earnings have driven the S&P 500 to new highs, with forecasts targeting a rise to 7, 700 by the end of next year.