It has been a tough week for technology companies, and investors are starting to worry that excitement around artificial intelligence (AI) may be cooling off.
The Wall Street Journal reported that the Nasdaq Composite Index fell 3% this week, its worst drop since President Donald Trump announced his tariff plan back in April.
The most affected in the market fall include big tech names that have benefited from the AI boom. Palantir’s stock fell 11%, Oracle dropped 9%, and Nvidia lost 7%. Meta and Microsoft also slid about 4%, even after both companies said they would keep spending heavily on AI in their recent earnings reports.
Other factors, like the ongoing government shutdown, declining consumer confidence, and widespread layoffs, may also be dragging down the market. However, indices such as S&P 500 and the Dow Jones Industrial Average saw smaller losses, 1.6% and 1.2%, respectively.
What is an AI bubble?
The recent downturn has revived talk of a possible “AI bubble.”
An AI bubble refers to a situation where stock prices of companies involved in artificial intelligence are rising too quickly because of hype and speculation, rather than real profits. This happens when investors pour huge amounts of money into AI without solid evidence that the technology will deliver returns soon.
The current AI boom, which started in the 2010s and accelerated in the 2020s, has seen billions of dollars invested in generative AI tools and AI-powered products.
Many experts compare it to the dot-com bubble of the late 1990s, when internet companies were valued far higher than their actual earnings justified.
AI companies are spending heavily but often have unclear profit paths. Valuations, especially for firms like Nvidia, are at record highs, raising fears that prices might be unsustainable.
According to a Bank of America Global Research survey, 54% of investors said they believe AI stocks are already in a bubble, while 38% disagreed. The Bank of England’s Financial Policy Committee also warned that the “risk of a sharp market correction has increased,” adding that a sudden drop in AI-related stocks could have a “material” impact on the financial system.
What experts are saying
As reported by Reuters, Bryan Yeo, chief investment officer at Singapore’s GIC Private, said at the Milken Institute Asia Summit 2025, “There’s a little bit of a hype bubble going on in the early-stage venture space. Any company startup with an AI label will be valued right up there at huge multiples of whatever the small revenue (is),… That might be fair for some companies and probably not for others.”
Jeff Bezos, founder and executive chairman of Amazon, shared a similar concern during Italian Tech Week. “When people get very excited as they are today about artificial intelligence, for example, every experiment gets funded,… And investors have a hard time in the middle of this excitement distinguishing between the good ideas and the bad ideas,” he said. “A bubble like a banking bubble, a crisis in the banking system, that’s just bad … The ones that are industrial are not nearly as bad, it could even be good because when the dust settles and you see who are the winners, society benefits from those inventions.”
Goldman Sachs economist Joseph Briggs, however, believes the surge in AI investment is still sustainable. As reported by Reuters, he stated that while the long-term outlook remains strong, “the ultimate AI winners remain less clear,” warning that rapid change and competition could limit early leaders’ advantages.
Investor Michael Burry has taken bearish positions against Nvidia and Palantir, warning in an X post of a possible AI and tech bubble.
Morten Wierod, CEO of ABB, took a different view. “I don’t think there is a bubble, but we do see some constraints in terms of construction capacity not keeping up with all the new investments,” he told Reuters.
Pierre-Olivier Gourinchas, the IMF’s chief economist, said the US AI boom might end in a dot-com-style bust but added that it’s unlikely to trigger a global financial crisis. “This is not financed by debt, and that means that if there is a market correction, some shareholders, some equity holders, may lose out,” as reported by Reuters.
UBS equity strategists found that many investors still see opportunity in AI despite bubble concerns. “Most felt we were in an AI bubble, but that far from the apex of a bubble peak and thus around 90% of the people who said we were in a bubble said they were still invested in many of the AI-related areas.”
