The AI Bubble?

Nothing is ever truly new under the sun. To a certain extent, every major event, new trend, or discovery is simply history repeating itself in a different form or shape. But for those who take the time to look closely, beyond what is immediately visible, the patterns and similarities that connect the present to the past are always there. This idea is especially evident in the financial world.

As far back as the history of investing can be traced, it has always been a game in which only a few manage to come out as long-term winners. Investing, at its core the act of sacrificing assets in the present for the hope of future returns, is inseparably tied to an unpredictable and volatile future. Because of this, investors across time have struggled to discover a single reliable method to consistently win the “hottest game in town.” That unpredictability and volatility are why the single most powerful force driving the market has always been investor psychology, both for better and for worse.

A walk down memory lane quickly reveals the role psychology has played in major turning points: the crash of 1929, the market collapse of 1987, the financial crisis of 2008, and more recently, the economic turmoil of the COVID-19 pandemic. Each of these events reshaped markets and altered the rules of the game. Yet, no amount of restructuring or new regulation has ever eliminated the possibility of recurrence, because the underlying driver, human behavior, remains constant.

This brings us to the present year, 2025, where the stock market is sitting at record highs and the race for artificial intelligence dominance is in full swing, drawing dizzying levels of investment. But why should this AI race be considered a bubble? And if it is one, what might the consequences be?

I have not lived through past bubbles myself, but I am convinced that while the past does not perfectly predict the future, it remains one of the greatest teachers of wisdom. In my 26 years of life, I have learned that those who dismiss history’s lessons often find themselves on the wrong side of events.

Two years ago, I had the privilege of reading Howard Marks’ works, The Most Important Thing and Mastering the Market Cycle. These books profoundly shaped my approach to markets. The first gave me insights into risk management, while the second offered a framework for understanding the cycles we are currently living through.

Historically, almost every bubble has been fueled by the belief in a “new grail”: a revolutionary invention or advancement that seems destined to grow indefinitely and generate limitless returns with little or no risk. That assumption has been proven wrong time and again, often ending with a harsh reality check.

In his discussion of market cycles, Marks highlights the inevitable upward and downward swings that shape investing. After the sharp drop of 2020 brought on by the pandemic, AI, an idea that had been brewing for over a decade, finally burst into the mainstream, igniting a race among nearly every tech giant. The so-called “Magnificent 7” have since led a record-setting climb in stock prices, dominating market valuations in the United States and driving optimism to levels not seen in years.

Today, market concentration is near historic highs. The Wall Street Journal has noted the massive sums flowing into data centers to support AI development, while relatively few investors stop to question how long it will take before AI adoption translates into truly essential, everyday economic value. Even OpenAI, with more than 700 million users, continues to operate at a loss.

Tech giants are committing funds they do not yet have, signaling a wave of credit expansion with little regard for risk. Investor psychology is exuberant; few acknowledge the risk of capital loss, and the expectation of endless future profits seems unshakable.

I firmly believe AI has the potential to make the world a better place when used responsibly. It has already proven to be an invaluable assistant to me, both as a student and now as a financial professional. However, I would prefer to see markets approach this powerful advancement with far greater caution.