Are We In An AI Bubble?
Are We In An AI Bubble?
Since ChatGPT launched in November 2022, AI-related companies have dominated the stock market. The top U.S. stocks have accounted for approximately 75% of the S&P 500's returns. While rising stock prices often raise fears of speculative bubbles, a closer examination of the fundamentals and activities within these companies reveals a different story. Their advancements in AI technology are transforming various industries, fostering real economic growth, and driving investor returns.
If you listen to The "AI Bubble" and Stock Market Concentration, episode 390 of the Rational Reminder podcast, you'll hear co-host Ben Felix say, "the rapid rise in prices of the top U.S. stocks has also been accompanied by rapid earnings growth, so it’s not just hype. These companies are absolutely crushing it." These tech companies are performing exceptionally well, and there is significant economic substance to their success.
Moreover, according to a Sept. 2025 report by Michael Cembalest, Chairman of Market and Investment Strategy for J.P. Morgan Asset & Wealth Management, these leading U.S. tech companies have accounted for about 90% of capital spending. Major tech companies like Microsoft, Amazon, Alphabet (Google), and Meta (Facebook) are investing billions in data centers and computer chips to build out their AI infrastructure. Management teams believe that these investments will drive innovation and growth.
Addressing Concerns About AI Stocks
Given the rapid expansion and high stock prices, it's understandable that some investors are beginning to question whether these soaring AI-driven valuations are sustainable.
First, avoid trying to time the market. Even if you identify certain stocks as overvalued, successfully timing the market means you have to be correct twice: when to sell AND when to buy back in. Research consistently shows this is virtually impossible to do reliably.
The Challenge of Identifying "Bubbles"
You only know if you were in a bubble after it bursts. Markets can stay expensive for years before prices adjust. Just because prices are high doesn't mean a crash is coming soon.
Learning from the Dot-Com Era
Remember the internet bubble of the late 1990s? Many savvy investors recognized it was overheated as early as 1995, when Netscape Communications Corporation went public, but prices kept climbing for another 5 years. Those who sold too early missed out on substantial gains before the eventual decline. Being early can cost you just as much as being wrong.
The Bottom Line
High prices and strong momentum don't automatically mean a crash is coming. While AI-driven stocks have surged, the growth is rooted in real investment, substantial earnings, and actual innovation, rather than empty speculation. Instead of trying to predict peaks or time corrections, our approach is to stay grounded in fundamentals and maintain a long‑term perspective. Markets may ebb and flow, but disciplined investing endures. For over two decades, the fiduciary financial advisors at Hurlow Wealth Management Group have helped Midwest Millionaires navigate the stock market in good times and bad. If you would like a complimentary consultation, CLICK HERE to schedule an introductory call today.