Are We in an AI Bubble? Here's the Honest Answer

Entrepreneurs. Your office is wherever you are, the hair salon, a client meeting or your job site. U.S. bank gets it. You deserve U.S. bank business essentials Winner of Tearsheets Big Bank Theory Award for best new product 2025. It combines checking and card payment processing so you can accept payments and get paid faster. Plus, it offers unlimited digital transactions with no monthly maintenance fee. Are you a plumber and need to get paid? Get payment before you leave your client's house. Got a food truck at the stadium? You, you're covered selling your stuff at the weekend craft fair. We've got you. You can literally take payments anywhere. Your business should be as mobile as your lifestyle, and your banking partner should be one step ahead. Visit usbank.com to learn more. That's the power of US deposit products offered by US Bank National association member FDIC Trademark 2025 US Bank. You've heard me talk about BILT as the loyalty program that lets you earn points on rent wherever you live. And they just leveled up even more. As of 2026, homeowners can also earn up to 1.25x points on their mortgage payments. This is thanks to Bilt's three new credit cards, the Palladium Card, Obsidian Card and Blue Card. All three turn your housing payments, rent or mortgage into flexible rewards so you can choose the card that fits your lifestyle without missing out on points and exclusive benefits. Bilt points can be redeemed at top airlines and hotels, Amazon.com purchases, future rent payments and more. Built points have also been ranked by top publications as the industry's most valuable point currency. Your housing payment is already your biggest expense. Make it your most rewarding. Find the card that fits your lifestyle and apply today at joinbuilt.com moneyrehab that's J-O-I-N-B-I-L-T.com moneyrehab make sure to use our URL so they know we sent you. Terms and limitations apply subject to approval and eligibility. Built cards are issued by column NA member FDIC pursuant to license from MasterCard International, Inc. We finally, finally started regularly filming podcast episodes and posting the video to YouTube. You should go check it out. But that meant that we needed an in person producer. I love Morgan but I'm in LA and she's in New York. So I had to find someone local to fit seamlessly into our team. And when it comes to hiring, I trust indeed sponsored jobs to help connect businesses with the right people. If you're looking to build your own amazing team, indeed is the platform I'D use Get matched with and hire quality candidates who can drive the results you need. Sponsored Jobs boosts your job post for quality candidates so you can reach the people that can help your business thrive. Plus, with Indeed Sponsored Jobs, you only pay for results. Spend less time searching and more time actually interviewing candidates who check all your boxes. Less stress, less time, more results. Now with Indeed Sponsored Jobs and listeners of this show will get a $675 sponsored job credit to help get your job the premium status it deserves@ Indeed.com podcast just go to Indeed.com podcast right now and support our show by saying you heard about Indeed on this podcast. Indeed.com podcast terms and conditions apply. Hiring do it the Right Way with Indeed.

0:00

I'm Nicole Lapvin, the only financial expert you don't need a dictionary to understand It's Time for Some Money. Are we in an AI bubble? Well, for a year now, that has really been the trillion dollar question. Depending on who you ask, the answers range from of course we are to no. AI is obviously going to the moon. And honestly, both sides have some pretty solid points. Bill Gates warns that not every company is going to be an AI winner, and that a quote, reasonable percentage of today's AI stocks can't back up their valuations. Jan VanEck, the CEO of Fund Management firm Vaneck, is more of an optimist here. He believes that the AI bubble already had a correction in late 2025, and now we're entering a more sustainable phase two too. Experts, though, are really split and both sides cannot be right. So let's take a look at what's actually happening. According to UBS, global AI spending is set to reach $500 billion by 2026. Microsoft, Amazon, Meta and Alphabet, aka the hyperscalers, are pouring hundreds of billions of dollars into AI infrastructure, and companies like Nvidia are pulling in record earnings. The concern is that the valuations and investment behind these companies aren't driven by the financial fundamentals, but actually driven by H and momentum. And there's reason to be worried about that. Palantir, for example, a data integration and analytics platform, is trading at a PE ratio near 400, which is 16 times higher than the average of the S&P 500. Now, a PE ratio measures how much investors are willing to pay for each dollar of a company's earnings. So Palantir investors are willing to pay $400 for every $1 of earnings. It sounds crazy, but the rationale is that investors are comfortable paying a massive premium today because they believe company's future earnings will grow dramatically. But that's a level of optimism that might be hard to deliver on. And that's where investors start to worry about something being overvalued. If a company with a high PE doesn't end up growing fast enough, the stock can fall sharply as expectations reset. For investors, buying into companies that appear overvalued can mean taking on more risk, not because the business is bad, but because the price already assumes near perfection. And when perfection doesn't show up, valuations tend to come all the way back down to earth. These observations are giving some investors.com bubble deja vu the dot com era was a period in the 90s when Internet stocks became way overhyped. The bubble popped, and In October of 2002 the NASDAQ was 77% lower than it was during the dot com peak in March of 2000. So the big fear, especially for investors who have been around for a while, is that the AI bull run is just.com bubble 2.0. And there are definitely some similarities that are hard to ignore. Like sky high valuations. Just like in the late 1990s, investors are putting massive price tags on companies that aren't yet profitable. OpenAI, the parent company of ChatGPT, for instance, was recently valued at around $750 billion. Despite projected losses through the end of the decade. OpenAI is planning on investing $500 billion in data centers over the next few years, but it doesn't expect to turn a profit as a company until 2029. And in 2029, OpenAI is only expecting to profit. And then there are some funky circular finances. During the dot com bubble, companies would often book revenue through vendors who were also their investors or customers. We're seeing some of that today in the AI space. For example, Nvidia has made large investments in startups like Core Weave, which in turn buys Nvidia chips, creating a closed loop that inflates perceived demand. Another problem with bubbles is that they're often not as self contained as they sound. A popping bubble can be the start of something much bigger. The fact that Nvidia was responsible for around a fifth of the S&P 500 gains in 2025 means that if anything goes wrong with Nvidia, the entire stock market is going to feel the pain. If the stock market is overvalued, that's when investors start worrying about crashes. Warren Buffett actually created an indicator for this. He looks at the total stock market valuation divided by gdp. So basically how big the stock market is compared to the entire economy. Historically when this ratio go goes above 100%, markets are overvalued. The indicator was 150 during the dot com bubble and now we are over 200. But here's what's different. Unlike the dot com era, many of today's AI leaders are already profitable. So maybe open AI is not going to be profitable until 2029. But Nvidia, Microsoft and Alphabet, they are cash flow machines. Nvidia's earnings have grown even faster than its stock price which has risen 3, 1300% in five years. And its PE ratio has dropped from over 200 to around 45. This cash flow point is an important one because it means that these companies can fund their own growth without relying solely on taking on debt or investors money. To be clear, there is definitely debt in AI. Oracle recently borrowed $18 billion to fund its AI infrastructure. That is a massive bet on future returns. If those returns don't materialize, that is a lot of leverage to unwind. Are we in a bubble? Well, here is the best honest answer. Maybe partially. There is a credible argument that some parts of the AI market are in bubble territory, especially unprofitable startups with soaring valuations and unclear paths to monetization. And circular financing deals and excessive leverage are definite red flags. But unlike the dot com bust where many leading companies had no profits or any real business models, the AI wave is anchored by giants with real revenue, disciplined capital allocation and robust balance sheets. Think of it like this. In 1999, the market was betting on the Internet, changing everything. It was right about that. It just bet wrong on the companies. Cisco, the darling of the dot com era, is still worth less today than it was at its peak 25 years ago. But the Internet, it did fundamentally change the world. And the same thing could happen with AI. The thesis might be right even if many current players don't survive. So I like Bill Gates's guidance. Not every AI company is going to be a winner. So we need to plan and diversify accordingly. For today's tip, you can take straight to the bank. If you want to ride the AI wave without wiping out, don't go all in on the loudest names with the biggest headlines. Instead, look for the enablers, the companies that provide the picks and shovels, so to speak. In this AI gold rush, that might be the semiconductor manufacturers, data center infrastructure plays or cloud providers with proven revenue streams.

3:21