AI Bubble Warning: GQG's Jain Calls Out Hype as 'Dotcom on Steroids'

GQG Partners founder Rajiv Jain believes the hype around AI stocks is similar to the dotcom bubble and will eventually subside. Despite this, Jain's firm has underperformed and experienced a slowdown in flows in H1 2025. Jain remains optimistic, calling for a bigger picture context.

The AI hardware boom, led by Nvidia's stellar Q2 2025 earnings report, has investors buzzing. However, Rajiv Jain, founder of GQG Partners, has a cautionary note, likening the current AI stock hype to the dotcom bubble of the late 1990s [1]. Despite his firm's underperformance in H1 2025, Jain remains optimistic, urging a broader perspective.

Nvidia's Q2 revenue hit $30 billion, up 122% year-over-year and 15% sequentially, driven by AI data center dominance and robust gross margins of 75.1% (GAAP) and 75.7% (non-GAAP) [1]. The company's 86% market share in AI GPUs is largely attributed to its CUDA ecosystem and Blackwell tech, which have become the standard for hyperscalers like Microsoft, Amazon, and Google [1].

The broader chip sector is experiencing a wave of optimism, with Deloitte projecting global semiconductor sales to hit $697 billion in 2025, fueled by AI integration into various devices and data centers [1]. However, the sector's valuations are stratospheric, with the S&P Semiconductor Select Industry Index trading at a trailing P/E of 35x, nearly double its 10-year average [1]. Nvidia's $4 trillion market cap has become a bellwether for this AI hype cycle [1].

Jain's comparison to the dotcom bubble is not without merit. The AI sector's valuations are currently sky-high, and speculative capital has poured into leveraged ETFs like the GraniteShares 2x Long NVDA Daily ETF (NVDL.O), which amassed $4.5 billion in assets [1]. While Nvidia's earnings report is a green light, investors should remain vigilant against potential corrections if earnings growth slows [1].

Nvidia's competitors, such as AMD and Intel, are closing the gap with their own AI chip offerings, while Qualcomm is diversifying the market with edge AI and mobile applications [1]. However, Nvidia's ecosystem remains unmatched, built on CUDA, partnerships with cloud providers, and a first-mover advantage [1].

Investors should differentiate between the AI revolution and the stock market's reaction to it. Nvidia's Q2 results validate its role as the “GPU of choice” for AI, but its valuation demands exceptional execution. The company's ability to maintain its market share and deliver on Blackwell's promised performance will be critical [1].

The broader chip sector offers a mix of opportunities and risks. While AI-driven growth is real, investors should avoid overpaying for companies with unproven AI strategies. Focus on firms with strong cash flows, like Intel and AMD, which are reinvesting in advanced packaging and open-source software stacks [1].

In the end, the sustainability of the AI hype cycle will depend on real-world applications, not just speculative fervor. For now, Nvidia's earnings report is a green light, but investors should stay grounded and hedge against sector-wide risks by diversifying into AI infrastructure and edge AI players [1].

References:
[1] https://www.ainvest.com/news/nvidia-q2-earnings-barometer-ai-hardware-sustainable-growth-2508/