The AI Bubble: A Threat to Tech's Strength

Donald Trump's presidency is seen as a catalyst for the AI bubble, with top 10 S&P 500 companies being more overvalued than during the dot-com era. The AI sector has experienced significant growth, leading to concerns about a potential bubble.

The artificial intelligence (AI) sector has been experiencing unprecedented growth, with the top 10 S&P 500 companies becoming increasingly overvalued compared to the dot-com era. This rapid expansion has raised concerns among financial analysts about the potential formation of a bubble. Torsten Sløk, chief economist at Apollo Global Management, has warned that AI stocks are even more overvalued than those during the dot-com era, with shares of companies like Nvidia, Microsoft, and Apple leading the charge [1].

Sløk's analysis suggests that the current AI bubble is larger than the dot-com bubble of the 1990s. He notes that the top 10 companies in the S&P 500 today are more overvalued than they were during the dot-com era. This overvaluation is evident in the 12-month forward price-to-earnings (P/E) ratios of these companies, which are higher than those seen in the late 1990s [1].

The AI sector's growth has been driven by significant demand for AI chips, with Taiwan Semiconductor Manufacturing Co. (TSMC) reporting a 39% revenue increase in the first two months of 2025. This growth is a barometer for the AI sector, as TSMC manufactures most of the AI chips in the world [2]. However, this growth has also raised concerns about the sustainability of the AI frenzy, especially after China's DeepSeek demonstrated a more frugal approach to AI development.

The AI sector's rapid growth and overvaluation have led some to compare it to the dot-com era. Robert Daugherty, in an article for Forbes, notes that the current AI revolution echoes the dot-com era, with speculative plays soaring while established companies face unfounded fears about their obsolescence [3]. This dynamic is similar to the dot-com era, where the market overestimated the speed of disruption while underestimating the ability of established companies to adapt and thrive.

The AI sector's overvaluation and rapid growth have led to concerns about a potential bubble. However, it is important to note that the AI sector is still in its early stages, and the long-term potential of AI is still uncertain. The AI sector's growth has been driven by significant investment and innovation, and it is possible that this growth will continue in the future.

In conclusion, the AI sector's rapid growth and overvaluation have raised concerns about the potential formation of a bubble. However, the long-term potential of AI is still uncertain, and it is important to remain cautious about the risks associated with investing in this sector. The AI sector's growth and overvaluation have led to comparisons with the dot-com era, and it is important to remain aware of the lessons learned from that period.

References:
[1] https://fortune.com/2025/07/17/ai-bubble-vs-dot-com-stocks-apollo-economist-torsten-slok/
[2] https://gulfnews.com/technology/tsmc-s-sales-quicken-in-first-two-months-in-upbeat-note-for-ai-1.500056383
[3] https://www.forbes.com/sites/robertdaugherty/2025/07/16/ai-revolution-echoes-dot-com-era-history-rhymes-for-smart-investors/