Are we in an AI bubble?

18 November 2025

In November the share prices of some technology companies, particularly those related to Artificial Intelligence (AI) have experienced a pullback, prompting renewed concern about whether the excitement around AI has pushed markets into bubble territory. This has led to increased volatility leaving investors to question the sustainability of the AI investment theme, especially after a period of rapid gains and high expectations. However, it is important to look beyond short-term price fluctuations and consider the broader context and fundamentals driving the sector. 

AI buzz propels market forward 

Commentators and AI-related businesses have created a buzz around the industry, talking up its potential benefits such as its ability to transform industries, deliver extraordinary efficiency gains, and usher in a new era of productivity. Investors have responded enthusiastically, wanting to be part of this new transformative technology. Indeed, AI-related companies have been the dominant driver of global share market returns over the past couple of years. The build-out of AI infrastructure is also supporting economic activity, particularly in the United States, at a time when other sectors face policy uncertainty and trade headwinds. 

AI expansion brings growing vulnerabilities 

However, as the AI investment landscape evolves, some concerns have begun to surface. There is growing reliance on debt to finance AI infrastructure, and signs of speculative behaviour have appeared in certain areas, such as quantum computing and cryptocurrencies. The expansion of AI investment beyond the dominant mega-cap technology firms to smaller companies and non-tech sectors introduces new risks. This is especially the case for those new entrants that are heavily dependent on external funding. 

Strong fundamentals keep AI investment on solid ground 

Our lead investment manager, JBWere, is mindful of these risks and the evolving AI narrative. However, JBWere view the current market conditions as broadly supportive, particularly for the larger, more dominant, established technology companies. While valuations across the technology sector and AI-related companies are high, they are not at the extreme levels seen during the late 1990s tech bubble. The largest technology companies continue to generate strong earnings and cash flow, maintain robust balance sheets, and dominate their competitive landscape. Their increased expenditure is still manageable relative to their cash flows, allowing them to sustain heavy investment in AI infrastructure without compromising financial stability. Furthermore, broader investor positioning appears more measured than in previous episodes of speculative euphoria, with reports of plenty of cash still on the sidelines and no signs of feverish stock listings as previous bubbles have exhibited. 

Looking ahead: JBWere’s outlook for AI investment  

JBWere believe the sustainability of the AI investment theme will depend more on the broader macroeconomic environment than on dynamics within the technology sector. Solid economic growth and supportive central bank policies provide a favourable backdrop, and JBWere expects investors to continue rewarding growth themes like AI. While risks remain, such as a potential deterioration in the US economy or a renewed rise in bond yields, these are not JBWere’s base case outlook. 

In summary, while there are risks and elevated expectations in the AI sector, JBWere believes the fundamentals and broader economic conditions support the ongoing AI investment story. The balance of probabilities still favours a continuation of the AI theme rather than a collapse. Instead, the best investment opportunities may lie in being selective within markets, rather than expecting broad market gains from here. 

Investors should focus on the long term  

To help navigate volatility, it is important for investors to maintain their focus on the long-term investment horizon. Markets can shift rapidly, and selling investments based on short-term market fluctuations could limit the potential of your savings nest egg. 

We know that volatility in markets can be unsettling. If you would like to consider your investment options, the Fund Finder tool on our website and our nationwide network of MAS Advisers, are here to help. 

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