If you were around for the late 1990s, this feels eerily similar. The excitement, the overnight experts, the sky high valuations tied to vague promises of the future. The AI trade has that same electric buzz. It also has the same blind spots.
Artificial intelligence is real. Just like the internet was real. The mistake people make is assuming that because the technology is revolutionary, every company connected to it deserves a trillion dollar valuation. That is not how markets work. That is how bubbles form.
In 1999, adding “.com” to your name could send your stock vertical. Today, mentioning AI in an earnings call can do the same thing. Revenue does not matter as much as narrative. Profitability gets pushed to the side. Vision sells. Cash flow becomes optional, at least in the short term.
That does not mean AI is fake. It means expectations are running ahead of reality. We are pricing in a fully automated, productivity exploding, margin expanding future right now. The infrastructure buildout alone will take years. Adoption cycles will take even longer. Markets rarely have the patience for that.
The dot com bubble eventually burst because valuations disconnected from business fundamentals. Companies with no viable model were valued like world changing giants. When capital dried up, they collapsed. Pets.com disappeared. Countless others followed. Investors who chased hype paid the price.
But here is the part people forget. Amazon survived. So did eBay. So did a handful of other companies that actually built durable businesses. Those survivors went on to dominate the next two decades. The winners became far bigger than anyone imagined in 2000.
AI will likely follow the same script. There will be a washout. Some companies that look unstoppable today will not exist twenty years from now. Capital will tighten. Margins will compress. Reality will set in. That is how excess gets cleaned out of the system.
At the same time, the core leaders will emerge stronger. The companies that control chips, data, cloud infrastructure, and real world applications will not just survive. They will compound. Once the noise fades, the real value will become obvious.
Another factor driving the bubble is easy capital and passive flows. Money chases momentum. Indexes overweight the biggest winners, which pulls in more capital, which drives prices even higher. It becomes self reinforcing. Until it is not.
Retail participation also plays a role. Social media accelerates narratives. Every breakthrough demo goes viral. Every new model release gets treated like a moon landing. Optimism spreads faster than skepticism. That fuels speculative behavior.
The danger is not believing in AI. The danger is believing the current price is justified by the distant future. When valuations assume perfection, even small disappointments can cause major repricing. That is where volatility will show up.
Still, long term I am bullish on the technology itself. AI will reshape industries. It will cut costs, improve logistics, enhance medical research, and transform how businesses operate. Productivity gains from this cycle could be massive. That is not hype. That is likely.
But markets always overshoot before they normalize. They overshoot on the way up and often overshoot on the way down. The AI trade feels stretched. It feels crowded. It feels like late innings behavior, even if the technology is early stage.
Decades from now, people will look back and laugh at how small today’s leaders were. They will also struggle to remember most of the names currently being hyped. That is the nature of innovation cycles. A few giants emerge. The rest fade away.
The key is separating the theme from the ticker symbol. AI as a concept will win. Not every AI stock will. Some are riding a wave they did not create and cannot sustain.
We have seen this movie before. The script rarely changes. Excess comes first. Collapse comes next. Dominance comes after that. If you understand that sequence, you can navigate the bubble without being blinded by it.
Thank you for dropping by. As always, all writing on this blog is original and written by me. The blog cover image was created with ChatGPT by OpenAI because I am a terrible artist in both the physical and digital world. All text is mine, with one spellcheck after completion using ChatGPT by OpenAI.
