{"id":492073,"date":"2025-10-11T22:30:20","date_gmt":"2025-10-11T22:30:20","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/492073\/"},"modified":"2025-10-11T22:30:20","modified_gmt":"2025-10-11T22:30:20","slug":"we-know-how-this-stock-bubble-will-pop-weve-seen-it-before","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/492073\/","title":{"rendered":"We know how this stock bubble will pop – we\u2019ve seen it before"},"content":{"rendered":"

Open this photo in gallery:<\/a><\/p>\n

Since the launch of ChatGPT three years ago, AI-related stocks are responsible for generating 75 per cent of S&P 500 returns, 80 per cent of earnings growth and 90 per cent of capital spending growth, according to a J.P. Morgan paperDado Ruvic\/Reuters<\/p>\n

Here\u2019s a glimpse into the near future. The tech sector, drunk on the world-changing potential of artificial intelligence<\/a>, wildly overinvests in building out the technology, creating a kind of financial black hole that eventually collapses in on itself.<\/p>\n

The bubble will burst, the stock market will tank \u2013 making Friday\u2019s <\/b>3.56-per-cent decline in the Nasdaq Composite Index look like foreshadowing \u2013 but the technology now being manically scaled up will remain.<\/p>\n

This is not some contrarian prediction pulled out of thin air. It\u2019s just what tends to happen when you take a revolutionary technology and apply infinite funding with zero accountability for long enough.<\/p>\n

First comes the boom and then the bust. Then, in the aftermath, do we see what the technology can truly do.<\/p>\n

It\u2019s how the dot-com bubble went down. The telecom<\/a> industry spent way too much money laying fibre-optic cable that was mostly unused for years to come. The bubble burst, and investors big and small lost fortunes. But the groundwork was laid for the internet age, which really did change the world.<\/p>\n

The burning question for investors today: When does the AI boom reach its tipping point? That\u2019s arguably the murkiest part of all of this.<\/p>\n

There are credible voices on either side of the debate.<\/p>\n

On one hand, financial media is full of scary headlines about absurd stock valuations and a dangerous concentration of Big Tech in the U.S. stock market. How much longer can this go on?<\/p>\n

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Torsten Slok, the widely followed chief economist at private equity giant Apollo Global Management Inc. APO-A-N<\/a>, recently wrote that the \u201cAI bubble today is bigger than the IT bubble in the 1990s.\u201d<\/p>\n

That kind of talk can easily unnerve the average Canadian with money in the stock market. If a weatherman tells you a hurricane is coming, shouldn\u2019t you try to get out of the way?<\/p>\n

The problem is, there are lots of different ways to value stocks. Many market strategists insist stocks are not as frothy as they were in the 1990s, by most measures. Pricey, yes. But not unprecedented.<\/p>\n

They also say that most of the run-up in the stock market has been supported by earnings growth, which wasn\u2019t the case during the dot-com boom.<\/p>\n

Plus, the AI infrastructure build-out is largely supported by cash flows rather than debt. Morgan Stanley estimated that around half of the US$3-trillion expected to be spent on data centres over the next three years will be financed by Big Tech\u2019s internal cash flows.<\/p>\n<\/p>\n

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Surveying the research of some of the top minds in the business, one gets the sense this has much further to go before any imminent reckoning, despite how crazy speculative the financial markets seem right now.<\/p>\n

It brings to mind one of the most famous quotes in investing: \u201cThe market can stay irrational longer than you can stay solvent,\u201d British economist John Maynard Keynes said.<\/p>\n

A great example of this is the dot-com bubble itself, the excesses of which were evident long before the stock market crashed.<\/p>\n

In a speech in December, 1996, then-Federal Reserve Chairman Alan Greenspan warned about the \u201cirrational exuberance\u201d he saw taking hold among investors.<\/p>\n

He was right, but it took another three-plus years for the stock market to peak. In that time, the S&P 500 index doubled. The Nasdaq Composite Index quadrupled. <\/p>\n

If the peak excesses of the late 1990s are not yet upon us, you can feel the same forces building. <\/p>\n

The AI infrastructure spend is the single most important driver in both the global economy and financial markets today. Consider but a few of the signposts on the road to AI dominance:<\/p>\n