Wall Avenue’s AI Bubble Is Worse Than the 1999 D...

Again in 1999, Wall Avenue misplaced its collective thoughts over the web. Firms with no income have been all of the sudden value billions, “eyeballs” have been handled as foreign money, and market analysts predicted a frictionless future the place all the pieces could be digital. Then the bubble burst. Between March 2000 and October 2002, an estimated 5 trillion {dollars} in market worth vanished into skinny air.

Immediately, it’s taking place once more. This time, the magic phrase isn’t “.com.” It’s “AI.”

In keeping with Torsten Slok, the influential chief economist at Apollo International Administration, a serious world funding agency, the present AI pushed market bubble is much more stretched than the dot com frenzy of the late Nineteen Nineties. And he has the info to show it.

“The distinction between the IT bubble within the Nineteen Nineties and the AI bubble at this time is that the highest 10 corporations within the S&P 500 at this time are extra overvalued than they have been within the Nineteen Nineties,” Slok wrote in a latest analysis observe that was extensively shared throughout social media and monetary circles.

The Chart That Ought to Fear Everybody

The chart from Apollo compares the 12 month ahead worth to earnings (P/E) ratios of the highest ten corporations within the S&P 500 in opposition to the remainder of the index. In plain English, a P/E ratio measures how costly a inventory is by evaluating its worth to its earnings. A excessive P/E ratio means traders are paying a premium and are betting on robust future development.

Slok’s chart reveals one thing beautiful: in 2025, the P/E ratios of the highest ten corporations are even increased than they have been on the absolute peak of the dot com bubble in 2000.

Torsten Slok: “The distinction between the IT bubble within the Nineteen Nineties and the AI bubble at this time is that the highest 10 corporations within the S&P 500 at this time are extra overvalued than they have been within the Nineteen Nineties” pic.twitter.com/OEervHU4WG

— zerohedge (@zerohedge) July 16, 2025

This implies traders are betting so aggressively on AI giants like Nvidia, Microsoft, Apple, and Google that their inventory costs have turn into indifferent from their precise earnings, much more so than tech darlings like Cisco and AOL have been within the nineties. The highest 10 corporations driving this frenzy, which maintain essentially the most important market worth on Wall Avenue, embody tech titans like Nvidia, Microsoft, Apple, Alphabet (Google), Amazon, and Meta. It’s a tremendous concentrated AI frenzy that’s pushing a handful of mega cap shares into nosebleed territory.

A Slim Rally Lifting the World

You’ve gotten in all probability heard that the S&P 500 is performing properly this 12 months. Right here is the uncomfortable reality: most of these positive aspects are coming from simply these ten corporations. The opposite 490 corporations within the index are barely transferring.

This type of slim rally is extremely dangerous. It means the well being of your complete inventory market depends on the efficiency of a really small variety of corporations. If Nvidia sneezes, your complete market might catch a chilly. The issue is that Wall Avenue is treating AI as if it has already fulfilled each promise, from a productiveness revolution to trillion greenback value financial savings. The potential is being priced as a certainty, though most of these positive aspects haven’t but materialized.

Have We Realized Nothing Since 2000?

In 1999, the web was actual. It did change all the pieces. However that reality didn’t cease traders from wildly overpaying for corporations that would not ship on the hype.

The parallels with at this time’s AI pleasure are chilling. Each company earnings name now dutifully mentions an “AI technique,” similar to each firm in 1999 slapped on a “.com” to its identify. Shares are surging on the obscure potential of AI, not essentially on actual, present income.

Wall Avenue is pricing in an ideal AI future with out acknowledging the large dangers: regulatory crackdowns, staggering compute prices, mannequin hallucinations, or just a slower than anticipated adoption fee. As Slok’s chart exhibits, the market is pricing these high ten AI heavy corporations as if they’re invincible. That’s by no means an excellent signal.

AI Would possibly Be Greater Than the Web, however That Is Not the Level

This isn’t a query of whether or not AI will change the world. It’ll, simply because the web did.

The true query is how a lot traders are keen to pay at this time for earnings which may not arrive for years, if ever. If historical past teaches us something, it’s that bubbles don’t pop as a result of the expertise is faux. They pop when investor expectations dramatically outpace actuality and the move of straightforward cash dries up. The extra Wall Avenue bets on AI perfection, the extra fragile this market rally turns into.

What Occurs Subsequent?

If company earnings don’t catch as much as these sky excessive valuations, and shortly, the market could not even want a particular set off to deflate. The valuations alone might do the job. And when bubbles pop, they don’t achieve this politely. They implode, wiping out trillions in worth and shattering investor belief within the course of.

The expertise referred to as AI will definitely survive. The highest ten corporations seemingly will too. However the portfolios chasing this dream with no parachute won’t. Identical to in 2000, when it appeared the web had made monetary gravity out of date, the AI hype prepare is dashing towards a cliff it thinks it might probably fly over. Torsten Slok is simply reminding us that now we have been right here earlier than.