Artificial Intelligence Stocks Surge, Raising Concerns of a New Bubble

The stock market is experiencing an AI bubble, with tech giants like Meta and Nvidia seeing their values soar, and investors eagerly awaiting the public debut of AI-focused companies. Some investors are concerned that this bubble could burst like the dot-com bubble in the 1990s, potentially causing more significant losses. The NASDAQ index rose 80% from 1995 to 2000, only to drop 78% by 2002. Today, investors are flocking into AI companies without fully understanding their use-case applications, amid a struggling real economy and uncertainty over trade policies.

The stock market is experiencing an AI bubble, with tech giants like Meta and Nvidia seeing their values soar, and investors eagerly awaiting the public debut of AI-focused companies. Some investors are concerned that this bubble could burst like the dot-com bubble in the 1990s, potentially causing more significant losses. The NASDAQ index rose 80% from 1995 to 2000, only to drop 78% by 2002. Today, investors are flocking into AI companies without fully understanding their use-case applications, amid a struggling real economy and uncertainty over trade policies.

Torsten Sløk, Chief Economist at the economics research firm Apollo, has noted that the stock market today is eerily similar to the market before the dot-com bubble burst. The Top 10 companies in the S&P 500 today are more overvalued than they were in the 1990s, as indicated by their price-to-earnings ratios [1]. This raises concerns that the current bubble could be even worse than the dot-com bust.

However, Barry Schwartz, President and Chief Investment Officer at Baskin Wealth Management, sees some key differences. Unlike the dot-com pre-revenue companies, today's tech giants like Google, Apple, Meta, and Amazon are profitable and have global distribution and captive customers. Schwartz argues that these businesses will continue whether AI becomes a game-changer or not, but if it does, they will be poised to take advantage [1].

The AI market is also characterized by healthy competition among models, with tech giants aggressively adapting AI into their business models. Chipmakers like Nvidia are struggling to keep up with the insatiable demand, with Nvidia's revenues quintupling since 2022 [1]. Meanwhile, the real economy is struggling to find its footing amid trade war uncertainty and tariff costs, with companies like GM and Ford experiencing significant drops in profits [1].

While the fears of a repeat of the dot-com bubble may be legitimate, the more pressing threat could be the impact of the global trade war on financial markets. The upcoming earnings release of Affirm Holdings, a digital commerce platform, will be of great interest to investors. The company's earnings report is expected on August 28, 2025, with projected earnings per share of $0.11 and revenue of $839.88 million, signifying a 178.57% increase compared to the same quarter of the previous year [2].

In conclusion, while the AI bubble presents risks, the tech giants' profitability and global distribution suggest they are better positioned to weather potential storms. However, the impact of trade policies and the real economy's struggles remain significant concerns. Investors should keep a close eye on these factors and the upcoming earnings reports of companies like Affirm Holdings.

References:
[1] https://www.cbc.ca/news/business/armstrong-ai-markets-1.7608205
[2] https://www.nasdaq.com/articles/affirm-holdings-afrm-beats-stock-market-upswing-what-investors-need-know-0