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Is the Stock Market in an AI Bubble? Goldman Sachs Says ‘No.’

Oct 08, 2025 14:39:00 -0400 by Angela Palumbo | #AI #Street Notes

Sam Altman, CEO of OpenAI, has said we are in a “phase where investors as a whole are overexcited about AI.” (Andrew Harnik/Getty Images)

Key Points

Goldman Sachs has weighed in on whether a bubble is poised to pop in artificial intelligence, offering a reason for nervous investors to take a deep breath.

Peter Oppenheimer, the bank’s chief global equity strategist, says that though many on Wall Street are comparing market conditions now to those just before the dot-com bubble popped, stock valuations now are different than in the late 1990s.

“Valuations of the technology sector are becoming stretched, but not yet at levels consistent with historical bubbles,” Oppenheimer wrote in a research note Wednesday.

Five of the Magnificent Seven stocks are trading above their five-year average forward price/earnings valuations. Microsoft is trading at 32.2 times the earnings expected over the next 12 months, while Apple is trading at 31.9 times, Tesla at 186.7 times, Meta Platforms at 24.1 times, and Alphabet at 23.4 times. Meanwhile, Amazon.com and Nvidia are trading slightly below their five-year averages at 30 times and 31.8 times forward earnings, respectively.

The S&P 500 is trading at 23 times forward earnings, compared with a five-year average of 20.3 times.

While those tech valuations are high relative to the overall market and in historical terms, they are still below those of internet stocks before the dot-com bubble burst in 2000. At the end of 1999, Cisco Systems was trading at 96.7 times forward earnings, while Oracle was at 92.1 times, and eBay was at 351.7 times, according to Dow Jones Market Data, to name a few of the survivors of the bubble.

A major concern is that stock prices and valuations are rising based on potentially unrealistic expectations. Companies are spending tens of billions of dollars to build out the infrastructure needed to power AI, but they have yet to see meaningful returns on those investments. And AI isn’t yet able to complete the complex tasks it is expected to handle.

Oppenheimer says a market correction could happen if tech earnings disappoint and investors question future growth. Still, the companies leading the AI trade do have strong balance sheets, meaning they would be able to weather a slide in their share prices, he added.

“While stock prices have appreciated strongly, up until now, these have been reflected by powerful and sustained profit growth rather than excessive speculation about the future,” Oppenheimer said. “This pattern is unusual in the context of bubbles when the companies at the epicentre of the fervour are typically driven by expectations of future growth and market dominance rather than those that have already achieved it.”

Oppenheimer also noted that prior bubbles occurred in a period of major competition as “both investors and new entrants flock into the space.” This time around, the AI hype is focused on only a few companies, he said.

Still, the stakes are high because the Mag Seven’s combined market cap of $20.8 trillion makes up 36.3% of the S&P 500**.**

Concern over a possible AI bubble intensified after OpenAI CEO Sam Altman acknowledged the hype over AI. “Are we in a phase where investors as a whole are overexcited about AI?” he said to a group of reporters in August. “My opinion is yes. Is AI the most important thing to happen in a very long time? My opinion is also yes.”

Those upbeat about tech are focused on the latter part of that statement. They argue that AI is enormously important, and that the demand for it continues to grow.

In an interview on CNBC Wednesday morning, Nvidia CEO Jensen Huang said that AI demand has gone up “substantially,” this year. “I think we’re at the beginning of a new build out, the beginning of a new industrial revolution. And it’s going to be exciting times,” Huang said.

Write to Angela Palumbo at angela.palumbo@dowjones.com