Do asset owners think we are in an AI bubble?
Nvidia, which makes the chips which power AI and is at the forefront of the boom, has seen its share price go up 290 per cent over the past two years, leaving most market indices in the dust. So does that mean a bubble is forming? (Reuters/Dado Ruvic/Illustration)
Unless you’ve been living in a cave you will have heard talk of ‘the AI bubble’. Does it exist and will it pop?
For those of you in a cave: everyone thinks AI will solve *insert problem here*. This has caused the value of any company vaguely associated with AI to soar (hello, Nvidia). But ultra-high valuations, plus a hefty dose of market concentration, has raised more than a few concerns about how ‘bubbly’ things are getting.
Nvidia, which makes the chips which power AI and is at the forefront of the boom, has seen its share price go up 34 per cent so far this year. Over the past two years it has gone up by 290 per cent, leaving most market indices in the dust.
The European Central Bank, in its November 2025 Financial Stability Review, said valuations were “stretched”, reflecting the “difficulties associated with pricing financial assets in an environment characterised by elevated uncertainty”.
The Bank of England similarly noted an increase in “risky asset valuations” and argued this, combined with asset concentration, left equity markets exposed should the attitude towards AI stocks become less optimistic.
But the question remains — has a tech bubble actually formed?
The response from asset owners appears to be a resounding ‘no’, or at least, ‘not yet’.
Manoj Soni, chief investment officer of multi-family investment office Capricorn Private Investments, told AOX we had yet to enter bubble market territory: “The stock market is expensive but not yet in a bubble. When we compare it to certain valuations of stocks in the last tech bubble, they’re much lower.”
Anmol Goel, chief executive of GACS Multi-Family Office, agreed and said while valuations were “undeniably stretched and increasingly disconnected from near-term fundamentals”, the current environment was not “a classic tech bubble”.
This, he said, is because the AI growth is built on “stronger business models and real cash-flow generation”.
According to Soni, the earnings growth of the Magnificent Seven stocks is about 35 to 40 per cent compounded over two years, with the value of some tech stocks having increased proportionally to the uptick in earnings.
“I think that the main issue is concentration and high valuation, rather than excessive bubble valuation,” said Soni. “There are definitely some stocks [that are trading] on very high valuations, particularly very AI-specific names, and they have obviously gone through some high volatility, but I think that is normal market behaviour.”
Soni is not alone in his outlook. Schroders’ group chief investment officer Johanna Kyrklund said that while equity valuations were expensive, they were “not at extremes yet”.
She added that while you could make an argument for taking some risk off the table, most investors are not at this point and “there are costs to sitting on your hands”.
A report from Goldman Sachs in October noted that most bubbles form in a period of huge competition as investors and new entrants throng to the space. But so far the AI sector has been “dominated by a few incumbents”.
Another argument Goldman makes is that while the US market is increasingly concentrated around the tech sector, this concentration is neither unprecedented nor does it necessarily mean markets are in a bubble which is pre-determined to burst.
The report says: “This degree of concentration is, in our view, unsustainable and has been central to our view on diversification, but this is not the same as saying that we are experiencing a bubble, that technology cannot remain the dominant sector or, indeed, that the leading companies in technology cannot remain good investments.
“Importantly, there have been many periods of high market concentration in the past that have not ended with a bubble bursting. Indeed, historically the biggest sector has remained dominant for long periods of time, reflecting the key economic driver over time.”
That being said, both Goldman and Soni refused to rule out the possibility of a tech bubble forming. Soni acknowledged that “past behaviour would suggest that when you get a new technology, people get very excited by it”.
He added that Satya Nadella, Sundar Pichai and Sam Altman – chief executives of Microsoft, Google and OpenAI, respectively – have said a bubble is “inevitable” because the prize of being a front runner in this particular race is “very, very big”.
The family office’s strategy going forward appears to be exactly what Goldman recommends: diversification. Indeed, Capricorn has reduced its allocation to US equities, cautious of being too concentrated on a single equity market.
“If we start to see very high valuations everywhere, then we might start to pull back on our equities, hold a bit more cash, hold a bit more liquidity, and actually slightly reduce the risk, but I don’t feel like we’re there yet,” said Soni.
Schroders’ Kyrklund agreed: “As active investors, we take calculated risks based on a broad range of factors, knowing that over time our clients need a return.
“Looking at market valuations, we think that equity markets are still supported by the fact that bond yields are well-behaved, inflation is quiescent for now, and central banks are likely to ease a bit more,” she continued.
The alarm was sounded for some investors last month when news broke that more than $1tn had been wiped off the cryptocurrency market in the past six weeks, with high valuations and concerns regarding US interest rates causing a run on speculative assets.
For Soni, however, there is nothing out of the ordinary in the market movements of recent weeks: “The volatility that [we saw] in November is really just normal volatility, a lot of these stocks have had a great run… there are always pullbacks, and they can happen for any reason.”
In other words, it’s business as usual: there may be a small downturn, or there may be a large one, and it’s anyone’s guess as to when it will happen.