Are AI Stocks in a Bubble and Should Investors be Concerned?

Published 02/09/2025, 07:42
Updated 02/09/2025, 07:48

The large-cap indexes all set new records in August, but it wasn’t the usual suspects that led the way.

AI juggernauts Nvidia (NASDAQ:NVDA) and Palantir Technologies (NASDAQ:PLTR) barely tread water last month, with Nvidia down slightly, about 1%, and Palantir breaking even.

Their performance mirrors the returns of the Morningstar Global AI Select Index, which tracks AI stocks. The index was down about 1.6% in August.

These certainly aren’t terrible returns, but it is a bit unusual considering both Nvidia and Palantir posted blowout earnings in August and either raised their guidance or posted outlooks that exceeded Q3 expectations. That’s usually fuel for a major rally.

But there is an underlying concern among many investors about an AI bubble, similar to the dotcom bubble of the early 2000s. The soaring valuations and, in some cases, irrational exuberance around AI stocks may be causing some investors to cash out and sell high.

OpenAI’s Altman Expresses Concerns

It is not just social media chatter that has investors concerned — it comes from one of the leading AI voices — OpenAI CEO Sam Altman.

In August, in an interview with The Verge, Altman noted the similarities between the dotcom boom and bust and the current fervor around AI stocks.

“Are we in a phase where investors as a whole are overexcited about AI? My opinion is yes. Is AI the most important thing to happen in a very long time? My opinion is also yes,” Altman told The Verge. “When bubbles happen, smart people get overexcited about a kernel of truth.”

Market valuations are nearing levels last seen in 2021, before the post-COVID tech bubble burst and led to the 2022 bear market.

And Altman is not alone in his concerns. Other leading investors, including Apollo Global Management Chief Economist Torsten Slok wrote recently that the AI bubble is currently bigger than the dotcom bubble was.

Balance Short-Term Risks with Long-Term Potential

In addition, MIT recently released a study showing that 95% of AI pilot programs don’t deliver measurable revenue or earnings results. This could, in many cases, make stocks more overvalued, given irrational exuberance over anything AI.

“I think the market might be, indeed, getting ahead of itself, and this could lead to a more profound correction. In this sense, the news that Meta is freezing AI hiring and Commonwealth Bank is reversing AI job cuts adds to the anxiety about how companies are handling AI implementation,” John Murillo, chief business officer at B2BROKER, a global fintech solutions provider for financial institutions, said.

Murillo added that the long-term potential of AI shouldn’t be ignored, so the key is balancing the immediate risks with future growth.

“In the meantime, instead of diving into a growing plethora of various straight AI developments, despite their currently amplified downturn, I tend to focus more on companies like Nvidia and Palantir, which are more established, rather than speculative smaller highly debt-leveraged firms,” Murillo said.

Original Post

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2025 - Fusion Media Limited. All Rights Reserved.