The AI Boom: A 'Bubble' Driven by Momentum and Overvaluation, Says Veteran Investor Bill Smead

Veteran investor Bill Smead warns that the AI boom is a "bubble" driven by momentum, comparing it to the dot-com bubble. He believes that many people have too much money invested in AI stocks, making a crash likely. Smead notes that the close relationship between major AI companies, such as Nvidia and OpenAI, is "incredibly unusual" and is worried about the financial fallout if the stocks come crashing down.

Veteran investor Bill Smead has expressed caution about the current AI boom, likening it to the dot-com bubble of the late 1990s. In an interview, Smead noted that the rapid growth and high valuations of AI stocks are driven more by momentum than fundamentals, warning that a crash is likely if the trend continues AI Stocks Frenzy: Nvidia’s $100B Bet & Other Big Moves Ignite Markets (Sept 28–29, 2025)^[1]. He pointed to the close relationship between major AI companies, such as Nvidia and OpenAI, as a cause for concern. Smead believes that these companies' interconnectedness could exacerbate financial fallout if stock prices were to plummet .

Smead's concerns are echoed by other analysts. Bond legend Bill Gross has warned of "malinvestment" in AI infrastructure, predicting that some leading AI investments may experience significantly reduced growth if overdone . Gross compared the current AI frenzy to past bubbles, suggesting that the market's enthusiasm for AI stocks is not sustainable.

The AI boom has been fueled by several significant announcements. Nvidia's $100 billion investment in OpenAI, involving both equity and chips, sent Nvidia's stock to record highs and sparked antitrust concerns . Meanwhile, Google's parent Alphabet hit a $3 trillion valuation on revived AI optimism and jumped after winning a key U.S. court ruling . Microsoft reported booming Azure growth and a record $30 billion capex plan , while Palantir raised its revenue outlook on surging demand .

However, the market's enthusiasm for AI stocks may be overblown. The S&P 500 ex-Big Tech has gained ~12% YTD, while Nvidia has risen ~171% over two years . This disparity suggests that AI stocks may be overvalued. Furthermore, government fiscal stimulus, such as tax cuts and defense spending, is also propping up the markets .

Regulatory oversight is intensifying. The European Union is gearing up to impose a record fine on Google under its new Digital Markets Act . In the U.S., the Defense Department has called for careful handling of AI exports and research in sensitive areas . These regulatory developments could slow the AI boom and pose risks to AI stocks.

In conclusion, while the AI boom has been driven by significant announcements and market enthusiasm, veteran investors like Bill Smead and Bill Gross have warned of potential risks and overvaluation. The close relationship between major AI companies and the impact of government fiscal stimulus and regulatory oversight should be closely watched by investors.