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Is the AI trade a speculative bubble waiting to unravel?

Some of this has been mentioned in other threads here. What is somewhat surprising to me is how many are all starting to speak up. So, I thought this might deserve its own thread.

https://www.cnbc.com/2025/10/03/goldman-sachs-ceo-david-solomon-warns-stock-market-drawdown-is-coming.html

-Goldman Sachs CEO David Solomon said AI presented opportunities but that some investors were overlooking “things you should be skeptical about.”

-Speaking at Italian Tech Week in Turin, Italy, he said a “drawdown” was likely to hit stock markets in the coming two years.

-“I think that there will be a lot of capital that’s deployed that will turn out to not deliver returns,” he said.

“I wouldn’t be surprised if in the next 12 to 24 months, we see a drawdown with respect to equity markets ...and when that happens, people won’t feel good.”

Amazon founder Jeff Bezos said Friday that artificial intelligence is currently in an “industrial bubble.”

Karim Moussalem, chief investment officer of equities at Selwood Asset Management, meanwhile, warned of “enormous risks” on the horizon for the AI trade which could rapidly unravel. “The AI trade is beginning to resemble one of the great speculative manias of market history,”

Veteran investor Leon Cooperman told CNBC that we are in the late innings of a bull market where bubbles can form — something Warren Buffett had warned about.

Most believe there is money to be made, but that the euphoria may be overblown.

Comments

  • To begin with, I look at all of the money being spent on data centers, and then I recall all of the money spent on rolling out fiber before the dot.com bust. It wasn't just pets.com that blew up.

    I wouldn't put new money into a fund like GRID, or any of the utes, at this time. If you're just now buying Seagate and Western Digital, well, I would stay close to the door. I'm old enough to remember the last time they boomed.

    After that, I think people need to look hard at what they expect AI to do. Those with rosier projection might consider recent comments by Thomas Wolf if they are interested in contrary points of view. Here's one link. And here's another.





  • Great reads, thanks.
  • answer to hed: no
  • edited October 4
    https://pracap.com/global-crossing-reborn/

    Solid data driven analysis
  • a2z
    edited October 4
    AI for hard science may lead once we are far (years) past trough of standard hype cycle.
    experts disillusioned elsewhere (e.g., toxic media,defense,finance) join Applied Minds and such companies.

    as for current bubble , see nobel prize skeptic from mit, and this :
    https://slate.com/podcasts/what-next-tbd/2025/09/artificial-intelligence-isnt-a-viable-business-but-investors-are-acting-like-it-is
  • edited October 4
    I don’t know. Many are making a case for the affirmative. (Here’s one.) The problem is that you can be “right” and yet early by several years. So, often skeptics end up looking like idiots six months or a year later.

    I’ve been searching in vain for Vanguard’s warning to its investors about excessive valuations made in the late 90s. The most memorable line was: “… trees don’t grow to the sky.” It received a lot of attention across the investment community back then. The markets continued to soar. I did uncover Fed Chair Alan Greenspan’s famous “irrational exuberance” remark from December 1996. Market impact lasted for a day or two. For perspective on the then looming catastrophe, in less than a decade (1995-2002) the NASDAQ rose 600% and then lost 78% of its value. Thrills and chills.

    Aside - Can’t help wondering how Fed Chair Alan Greenspan might have dealt with the kind of attacks on him personally and on the institution we have witnessed recently. My bet is he wouldn’t have taken it lying down.
  • edited October 4
    To be clear, I don't doubt that there is a future in AI. How that plays out, I have no idea.

    What I question, and several here have commented upon, is the enthusiasm and trajectory at this point in the process. What it might lead to if it doesn't produce relatively immediate and massive change (and profits). And what role AI is currently playing in the year's market gains.

    I do see a lot of parallels to Dotcom. Working in telecom, I was right in the middle of all of that. From my perspective, it was all about the routers and optical fiber. Eventually, the big players bought up all that excess fiber capacity at pennies on the dollar. And routers became commodities. Debt also played a huge role. Selling the hardware to start ups, and financing the purchases, turned out to be a big mistake. All sorts of accounting tricks were also employed to make profits look much better than they really were.

    Then reality set in.



  • I see AI going through the same shiny object-hype-disillusionment-hallelujah cycle as dot com / telecom. A big part of the AI cycle is driven by private credit which did not exist in 2000.
  • And private credit will try and lure in investors via 401k exposure, shifting the risk to retirement savers, for good or for ill.
  • My question is, how much of market gain is being rubbed off of AI & deposited on other equities?
  • Perhaps we should ask AI? Ahahah

    Key figures on AI's impact:

    -75% of S&P 500 gains: Since the launch of ChatGPT in November 2022, AI-related stocks drove 75% of the gains in the S&P 500, according to a September 2025 analysis by JPMorgan.

    -60% of 2025 market returns: In 2025, approximately 60% of market returns were attributed to AI-related stocks.

    -Dominance of the "Magnificent Seven": Much of this growth is tied to a handful of companies, including Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, and Tesla.

    -Through the first three quarters of 2025, this group added $3.1 trillion in market capitalization.

    -Sector-specific outperformance: A Morningstar analysis showed that a basket of 38 AI stocks significantly outperformed the overall market in the third quarter of 2025, gaining 15.7% compared to the market's 7.7% return.

    I don't know about you guys, but I am not feeling any better after reading that! If true, this bubble has been forming for 3 years already. And is highly focused on the usual suspects.


  • DrVenture said:

    And routers became commodities.

    Maybe Cisco will have another moment in the sun like Western Digital and Seagate.

  • Maybe. What Cisco had mostly in its favor in the early days was almost no competition.
    Now they have plenty of credible peers. Still a good company though.

    M* says they are currently over-valued. But, have a wide moat and great capital allocation structure.
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