Are we in a tech bubble?
Please note: This article is considered to be thought leadership in nature. It does not constitute investment advice, and any references to individual stocks should not be considered as recommendations. All data is sourced from Bloomberg and is accurate at the time of publishing (28 August 2025).
The modern-day hype surrounding artificial intelligence (AI) has seen global investors pile into tech stocks with a relentless enthusiasm that defies the stuttering macroeconomic backdrop.
As a result, US equity markets have been propelled ever higher, with the so-called ‘Magnificent 7’ tech stocks becoming the growth story of our times.
Despite the euphoria, or arguably because of it, some investors have started to question whether a reality check is overdue.
Peak hype?
In July 2025, two firms from that Mag-7 cohort – Nvidia and Microsoft - rode the wave of optimism to new heights. AI-superstar Nvidia became the first ever company to be valued in excess of $4 trillion (USD). Shortly afterwards, Microsoft, one of Nvidia’s biggest customers, achieved the same feat. Their success is even more remarkable when you consider how precarious and friction-laden the global trade environment is right now.
In the case of Nvidia, the transition to becoming the world’s-most-valuable-company, has been breathtakingly quick. In February 2024, the chip maker hit a $2 trillion (USD) valuation milestone. Then, in June the same year, it reached a $3 trillion (USD) market cap.
However, for all the success stories, are there signs that AI-exuberance may be losing steam? In the week commencing 18 August 2025, two evetns in quick succession spooked markets:
First, a report from the renowned Massachusetts Institute of Technology (MIT) that claimed, “95% of organisations are getting zero return [i]” from their investments in generative AI.
It would be hard to imagine a more damning assessment, and things escalated only days later. One of the biggest players in the AI space, Sam Altman, the chief executive of OpenAI, offered a surprising view that investors shouldn’t bank on being rewarded.
In response to questions from journalists, he said: “Are investors over excited? My opinion is yes… I do think some investors are likely to lose a lot of money, and I don’t want to minimise that, that sucks. There will be periods of irrational exuberance. But on the whole the value for society will be huge.[ii]”
In the immediate aftermath of his comments, tech stocks sold off as investors questioned their prior confidence.
Is history repeating itself?
Even before the most recent sell-off, some investors had started to draw parallels between today’s climate, and the so-called ‘dot-com era’ of the mid-to-late 1990s.
Between 1995 and the early 2000s, the emergence and rollout of the internet saw disproportionate levels of faith being placed in internet-based start-ups. Media hype helped to transform relatively new companies into household names, all in a relatively short space of time.
The optimism surrounding these tech start-ups fueled the longest post-World War II expansion of the US economy, and tech stocks were red hot. In a single year (1999), the Nasdaq rose by a staggering 86%.
Unfortunately, things quickly unraveled when the US Federal Reserve opted to raise interest rates in 2000.
It triggered a tech sell-off that ultimately brought the curtain down on the dot-com dream. Many of the internet start-ups collapsed in the face of waning investor support and more expensive debt obligations. It would be a decade before the Nasdaq recovered to its dot-com peak.
Not all of the start-ups disappeared in the meltdown. Amazon and eBay were two noticeable survivors who thrived in the aftermath.
While there have been various bubble events over time, the ‘Nifty 50’ stocks of the 1960s and 70s are worth a quick mention. During this period, investors worshipped a basket of 50 US stocks, which included household names such as Coca-Cola and IBM, and collectively painted a picture of unassailable growth. For a time, holding the ‘Nifty 50’ was considered the major equity game-in-town. Soaring valuations failed to dampen the excessive euphoria, and you could argue that similar dynamics are playing out today.
As with the dot-com era that followed, things ultimately came crashing down. The market flipped from bull to bear, and the fallout still serves as a cautionary tale of the risks of overweighting a single investment objective (in this case, growth), and of neglecting the value of diversification. In simplistic terms, when you put too many of your eggs in one basket, it can come back to bite.
Today’s events in context
All of which brings us to the speculation brewing in some quarters about whether we find ourselves in a tech bubble again.
On the surface, there are similarities between current conditions and the dot-com era of 25 years ago. Crucially, however, there are also key differences.
Let’s start with the similarities. Once again, investors have piled into a nascent tech trend that’s relatively unproven. Widespread talk of an era-defining technological revolution has supercharged the tech sector, generating huge personal wealth and publicity for founders. At the same time, the enthusiasm doesn’t appear to have been tempered by the large number of ‘unknowns’ associated with such new technological capabilities. All of that might sound familiar, but the situation is far from identical.
While valuations of the big AI players, and of US equities more broadly, are undeniably high, there’s a financial resilience and profitability, amongst the biggest AI players that contrasts sharply with the hollow legs of dotcom start-ups. Today’s AI giants, while certainly not immune to downturns or even collapse, could potentially tolerate a cooling in sentiment.
Another interesting point of difference is the stubbornly high inflation that’s currently keeping interest rates higher for longer. Unlike today, the dot-com era was partly propped up by low rates and cheap borrowing.
In parallel, there’s genuine excitement about where AI could lead and the benefits it could yield for humanity. As an example, in 2024 one of the founders of Google DeepMind won a Nobel Prize for his work in using AI to predict the structure of proteins – a biological milestone with huge implications for human health in the future.
A few final thoughts
From an investor perspective, a look back in time reminds us that previous bubbles, and the circumstances behind them, are unique in their nature. As such, it would likely be a mistake to review the dot-com bubble or the Nifty-50 bubble, and consider them a precursor to what might play out today.
Ultimately, a cooling in investor mood towards AI is to be expected at some stage. While there are elements of a bubble environment currently on show, what we’re seeing now is potentially the start of a broader (and relatively normal) correction. Are-set of early enthusiasm might be overdue, as investors accept that more work and more time are needed to clarify the true potential of AI systems.
Only time will tell whether Altman’s opinion of “irrational exuberance” plays out. For now, US equity markets remain a key growth engine in diversified portfolios and funds, and the tech sector is an important contributor. The key, as ever, remains diversification – it’s typically your friend in good times, as well as bad times.
[i]Source: The GenAI Divide: State of AI in Business 2025, Project NANDA, Massachusetts Institute of Technology
[ii]Source: Financial Times, “US tech stocks hit by concerns over future of AIboom”
