History has a strange way of rhyming. In the 17th century, Dutch merchants believed tulips were a ticket to eternal riches. In the late 1990s, dot-com companies promised to change the world. Today, Artificial Intelligence (AI) is that shiny promise. The times, the industries, and the companies are certainly different, but one must pause and ask: Are investors again overpaying for the ability to change the world?
The recent market moves sharpen this question. Oracle shot up 35 percent in a single day, adding a staggering $244 billion in market cap overnight. NVIDIA has surged to become one of the most valuable companies in the world, crossing $4 trillion in valuation equivalent to India’s GDP. This euphoria is reminiscent of the dot-com bubble days, when Qualcomm stock skyrocketed by nearly 50 percent in a single week at the peak of the frenzy in early 2000. The parallels are too striking to ignore.
In March 2000, the Buffett Indicator which measures the stock market valuations to the country’s GDP peaked at 135 percent and the NASDAQ traded at a staggering 170x earnings and today those levels stand at 215 percent and 36x respectively. The ratio of NASDAQ Market Cap to US GDP now exceeds 105 percent, which is 40 percent more than the levels witnessed during dot-com bubble peak. The S&P 500’s Forward PE peaked at 24x during the dot-com bubble. Today, it stands at 23x indicating that we are fast approaching the dot com bubble levels.
Legendary investor Warren Buffett once said, “The key to investing is not assessing how much an industry will affect society, but rather the durability of its competitive advantage.” That line has never been more relevant. Automobiles and Airplanes transformed human life, but for decades (1970 – 2010), the Airline Industry made zero cumulative profits. Massachusetts Institute of Technology (MIT’s) New and Advanced Data Analytics (NANDA) initiative shows only 5 percent of AI pilot projects deliver rapid growth, highlighting inflated expectations fuelling today’s AI mania. Great innovations do not always translate into great investments.
The late 1990s are a reminder. Dot-com IPOs were the rage, capital was everywhere. Even e-commerce companies without profits were valued as though they would dominate the future forever. Many did not survive.
Fast forward to today. Venture capital is lapping up AI companies. Headlines celebrate billion-dollar funding rounds. Money is abundant, and investors are emboldened. But too much money chasing too few ideas often leads to ruinous valuations. AI Startup CoreWeave, an AI infrastructure company that went public in March 2025 and began trading on Nasdaq Select Global Market, fell 33 percent in 2 days wiping about $24 billion from its market cap.
Howard Marks, a legendary investor warns: “The best investments usually come when recent results have been poor, capital is scarce, and everyone is fearful”. Today, it feels like the opposite.
There is, of course, a kernel of truth. AI will change the world, just as the internet did. But as Sam Altman the Open AI CEO puts it, bubbles happen when smart people get overexcited about a kernel of truth. Ray Dalio, the legendary Hedge Fund Manager, has also warned about potential excess in AI valuations.
If you look at the Top 20 companies of the S&P 500 in year 2000, only a handful still remain at the top today. Microsoft, Johnson & Johnson, Walmart, Procter & Gamble, Exxon Mobil and Home Depot are the only companies that remain in the Top 20 S&P 500 after 25 years.
Competition, disruption, and shifting tides are constants. Yet in every bubble, investors convince themselves that today’s leaders will remain dominant for decades.
Bubbles are defined not only by numbers alone, they are a state of mind. They are marked by irrational exuberance, Fear of Missing Out (FOMO) and the belief that there is “No Price Too High.” We are beginning to see those signs in AI stocks.
This doesn’t mean a crash is imminent. Overpriced things can get more overpriced, sometimes for years. But as investors, we must remember the oldest truths: Profits matter, Valuations matter and Cycles matter. The disruptors of today can themselves be disrupted tomorrow.
So, while AI is real and transformative, we must separate the promise from the price. I would like to remind: It’s not what you buy, it’s very important that at what price you buy, that counts.
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