EXPERTS have warned about an AI bubble in the markets that’s “the biggest we have ever seen” and urged investors to be “cautious” around stocks.
They warned that, while AI is transforming industries and driving huge investor enthusiasm, parts of the market are showing signs of overheating as valuations surge and spending races ahead of proven returns.
Several experts said the rapid rise in AI-linked stocks has drawn comparisons with the dotcom boom, with concerns growing around concentrated market power, speculative investment and whether businesses can generate enough profit to justify current expectations.
Others argued that unlike previous technology bubbles, many of today’s leading AI companies are already highly profitable and generating substantial cashflow, meaning any future correction is more likely to be a repricing of expectations rather than a collapse of the technology itself.
Experts also warned that the long-term impact of AI will extend far beyond markets alone, with businesses increasingly reshaping hiring and training around the technology as demand for AI skills accelerates.
Yes, there is a bubble, and it is one of the biggest we have ever seen
Anita Wright, Chartered Financial Planner at Ribble Wealth Management, warned that there is a huge AI bubble.
She added: “Yes, there is a bubble, and it is one of the biggest we have ever seen. The top ten names in the S&P 500 are now more stretched against earnings than they were at the peak of the dotcom mania. AI is the story being sold to the public, but the real driver is cheap money, share buybacks and a handful of mega caps holding the whole index up.
“Strip those out and the rest of the market is already weak. When does it burst? Bubbles do not pop to a diary date. They pop when the credit behind them cracks. The warning signs are already flashing. Record private credit defaults, debt-fuelled AI capital expenditure (CaPex), and circular deals between the same handful of companies.
“No, it is not scaremongering. Scaremongering is telling people this time is different. The maths, the charts and the history all say the same thing, and the smart money is already rotating into hard assets.”
Paul Denley, CEO at London-based Oakham Wealth Management, said the warning signs are there.
He added: “The AI bubble debate is understandable, but too simplistic. There are warning signs: market concentration, stretched valuations, enormous capital spending and increasingly circular relationships between chipmakers, cloud providers and AI developers. That should make investors cautious.
“But caution is not the same as panic. Unlike parts of the dotcom era, many of today’s AI leaders are highly profitable, cash generative and funding investment from genuine balance sheet strength. AI is already being monetised through cloud demand, software tools & productivity gains. Markets could certainly correct if expectations run ahead of reality. More speculative AI stocks could fall sharply.
“But that is different from saying the entire market is fictitious. AI may be overhyped in places, but it is not imaginary. The real risk is not AI itself, but investors paying today for too much of tomorrow. The answer is not to abandon markets, but to be increasingly selective about what you own and why.”
There are warning signs
Lukas Kaminskis, CEO of edtech platform Turing College, said while there may be an AI bubble, it doesn’t change how important AI is and will be in the future.
He added: “Talk of an ‘AI bubble’ makes for a good headline, but it doesn’t reflect what’s really happening on the ground. Businesses across the UK aren’t just buying into hype – they’re investing heavily in AI skills and urgently upskilling their staff to keep up. That kind of demand points to a long-term shift, not a short-term bubble waiting to burst.
“Even if markets cool off, it’s unlikely to derail the wider AI trend. We’re already seeing companies move beyond experimentation and focus on real, practical uses that improve productivity and cut costs. That’s the kind of change that sticks, regardless of market swings.
“So while there may be bumps along the way, calling it a bubble risks missing the bigger picture. AI isn’t going away – it’s quickly becoming a must-have skillset, and that demand will continue whether markets rise or fall.”
Rob Mansfield, Independent Financial Advisor at Tonbridge-based Rootes Wealth Management, said if confidence in AI is hit then it could “create big waves” in the market.
He added: “Markets have been expensive for a while, even before ChatGPT stormed onto the scene. Most of the AI companies are private, and seem to throw numbers around like it’s monopoly money. It will be interesting to see if Anthropic and OpenAI do look to float on the market, as is rumoured.
“Listed companies like Nvidia are showing strong revenue and profit growth, but they have been big beneficiaries of AI companies hyper-scaling. There is a lot riding on the continued success of this technology and so a setback or a confidence wobble could create big waves in the market. Being diversified and not following the crowd on this may well prove to be a sensible strategy.”
The smart move for small businesses is steady and practical
Katrina Young, AI & Digital Transformation Strategist at KYC Digital, said AI is not at risk of disappearing any time soon.
She added: “The framing of an ‘AI bubble’ mistakes the symptom for the system. Valuations are stretched because markets are pricing in future enterprise adoption that has not fully materialised yet. A small group of companies are simultaneously funding, supplying and consuming the same AI ecosystem while CaPex is being committed years ahead of measurable returns.
“The assumption is that enterprise demand will catch up. In many cases, the operational controls underneath AI deployment are still immature. Data lineage, oversight and model assurance remain unresolved at scale. Pilots clear demo conditions. They do not clear audit. The real risk is not AI disappearing, but markets reassessing how quickly AI can produce reliable commercial returns.”
Mitali Deypurkaystha, Human-First AI Strategist & Author at Newcastle upon Tyne-based Impact Icon AI, said not many businesses are profiting from AI now.
She added: “Nearly 90% of companies now use AI, yet only 6% report meaningful profit gains from it, according to McKinsey research, which is exactly the kind of expectation gap that turns market excitement into bubble territory. The dotcom crash proved a technology can survive even after investors wildly overpriced its short-term impact, and AI may follow the same path: a painful repricing without the technology disappearing.
“What markets are really betting on is not today’s productivity, but tomorrow’s transformation arriving far faster than most businesses can realistically absorb it. That is why the real risk is not AI failing, but investors mistaking infrastructure spending and experimentation for immediate economic revolution. If the correction comes, it is more likely to punish exaggerated timelines than destroy AI itself.”
Nearly 90% of companies use AI, yet only 6% make meaningful profit gains from it
Aman Verjee, General Partner at Practical VC, said it is not the same as the dotcom boom and bust.
He added: “At the top of the market in 1999, the NASDAQ 100 peaked at 73 times earnings, the company in the middle of it was Cisco, which traded at 200 times earnings in 2000 and which was unprofitable in 2001. Now, the company in the middle of AI is Nvidia – they’ll do $200 million in net income this year. They’re trading at 15x fully taxed 2027 Earnings per share (EPS).
“Nvidia selling mostly to the hyper-scalers: Meta is at 14-15x, Alphabet and Microsoft are 18-22x. All of these companies are profitable and kicking off cashflow, buying back stock, paying dividends. These are real businesses that are supply-constrained, unlike 2000 when we were laying “dark fiber” in advance of demand that didn’t quite materialise.
Photo by Sash Sriganesh on Unsplash.
