--- title: "Is the AI Boom a Bubble? Wall Street Is Divided" description: "From Nvidia's record profits to trillion-dollar spending pledges, the artificial-intelligence trade has reshaped global markets. A growing argument now divides Wall Street: is this a justified boom with further to run, or a bubble heading for a painful correction?" category: "Economy" category_url: https://boursel.com/category/economy author: "Hannah Blackwood" published: 2026-06-27T16:44:20.000Z updated: 2026-06-27T16:44:20.000Z canonical: https://boursel.com/article/is-the-ai-boom-a-bubble-wall-street-is-divided tags: ["artificial-intelligence", "stock-market", "nvidia", "bubble", "valuation", "concentration"] --- # Is the AI Boom a Bubble? Wall Street Is Divided From Nvidia's record profits to trillion-dollar spending pledges, the artificial-intelligence trade has reshaped global markets. A growing argument now divides Wall Street: is this a justified boom with further to run, or a bubble heading for a painful correction? This is analysis of a debate, not a prediction. We present both sides and attribute the claims; we do not forecast a crash or a melt-up. ## What "bubble" actually means A financial **bubble** is when an asset's price rises far above its underlying value, setting up a sharp fall. The reference point everyone reaches for is the dot-com boom: between Netscape's 1995 listing and the March 2000 peak, the Nasdaq-100 rose roughly 1,090%. Since ChatGPT's late-2022 launch, [the same index has risen about 140%](https://fortune.com/2026/05/18/is-ai-a-bubble-1997-or-1999-wall-street-debate/) — a smaller move, but a fast one, and built on companies with real profits rather than the revenue-free startups of 1999. Whether that distinction is enough is the whole argument. ## The bull case: the earnings are real The strongest case against a bubble is that the leading AI companies actually make money. Morgan Stanley's Michael Wilson has framed the rally as "an earnings story, not a multiple expansion one," [per Fortune](https://fortune.com/2026/04/07/the-ai-trade-is-over-top-wall-street-analysts-say-the-ai-opportunity-might-be-just-starting/). Tech stocks trade at roughly 25 times expected earnings — the **forward price-to-earnings ratio**, or what investors pay per dollar of next year's profit — which is high but far below the [58 times reached at the 2000 peak](https://fortune.com/2026/05/18/is-ai-a-bubble-1997-or-1999-wall-street-debate/). Bulls also point to genuine productivity gains: [LPL Financial](https://www.lpl.com/research/weekly-market-commentary/the-productivity-advantage-powering-economic-growth-in-2026.html) noted U.S. productivity jumped in late 2025 as output rose while hours barely moved — evidence, they argue, that AI is delivering real efficiency, not just hype. ## The bear case: concentration and circular money Skeptics raise structural alarms that go beyond valuation. **Concentration.** Apollo's chief economist Torsten Slok warns the S&P 500 is "no longer diversified," with the top ten companies making up around 41% of the index's value, [Fortune reported](https://fortune.com/2026/05/18/is-ai-a-bubble-1997-or-1999-wall-street-debate/). When a few names dominate, a stumble in any of them drags the whole market. **Spending vs. revenue.** The big cloud companies are on track to spend hundreds of billions of dollars on AI infrastructure in 2026, [by Goldman Sachs estimates](https://www.goldmansachs.com/insights/articles/tracking-trillions-the-assumptions-shaping-scale-of-the-ai-build-out). Analysts at [Man Group](https://www.man.com/insights/the-ai-bubble) argue that identifiable AI revenue remains a small fraction of that outlay — a gap they call hard to sustain (the precise revenue figure is contested and moves fast). **Circular financing.** Perhaps the most specific worry is "vendor financing," where chipmakers and cloud providers invest in AI startups that then spend the money buying those same firms' chips and capacity — making demand look organic when it is partly the same dollars circulating among a few connected companies. [Bloomberg has mapped](https://www.bloomberg.com/graphics/2026-ai-circular-deals/) such arrangements among Microsoft, OpenAI, Nvidia and others; a similar pattern appeared in the late dot-com years. The bears include heavyweights: GMO's Jeremy Grantham [expects a deflation](https://www.gmo.com/americas/research-library/valuing-ai-extreme-bubble-new-golden-era-or-both_viewpoints/) that would bring "a major stumble for the economy, a plunge in profits, and a severe decline in valuations." ## What regulators say Official bodies have grown more vocal. The [IMF warned in October 2025](https://www.aljazeera.com/economy/2025/10/14/imf-says-ai-investment-bubble-could-burst-comparable-to-dot-com-bubble/) that an AI investment bust could resemble the dot-com crash. The [Federal Reserve's May 2026 Financial Stability Report](https://www.federalreserve.gov/publications/files/financial-stability-report-20260508.pdf) found a sharp rise in the share of market contacts naming AI as a possible source of systemic risk, and flagged stretched tech valuations as an amplifier. ## The market's own hedge Investors are already pricing in some doubt. Boursel has reported on the **rotation** out of megacap tech in 2026 — money spreading from the dominant few into the broader market. The equal-weight and small-cap parts of the market have outpaced the cap-weighted index, a shift that can read either as healthy broadening or as quiet hedging against the AI trade. ## How to think about it The honest answer is that no one knows. Evercore's Julian Emanuel, who likens today to 1999 more than 1997, told Fortune that "FOMO has proven a stronger incentive than poor stock performance." [Morningstar](https://www.morningstar.com/financial-advisors/ai-isnt-boom-or-bust-many-expect-heres-what-that-means-investors) offers a middle path: AI is probably neither the clean boom nor the certain bust, with real gains arriving more slowly than current prices assume. The outcome hinges on things that cannot be known today — how fast businesses adopt AI, whether the spending earns a return, and how long the circular financing holds. What is not in dispute is the stakes: the AI trade is among the most concentrated and capital-intensive bets in market history. Whether it turns out to be 1997 or 1999, the resolution — in either direction — will matter for almost every portfolio. ## Sources - [Is AI a bubble? 1997 or 1999 — the Wall Street debate](https://fortune.com/2026/05/18/is-ai-a-bubble-1997-or-1999-wall-street-debate/) - [Valuing AI: Extreme Bubble, New Golden Era, or Both](https://www.gmo.com/americas/research-library/valuing-ai-extreme-bubble-new-golden-era-or-both_viewpoints/) - [The AI Bubble: hidden risks](https://www.man.com/insights/the-ai-bubble) - [Financial Stability Report, May 2026](https://www.federalreserve.gov/publications/files/financial-stability-report-20260508.pdf)