AI Stocks: 3 Reasons Bubble Fears Are Overblown

In recent months, the AI bubble narrative has dominated headlines. With a number of prominent investors – including Michael Burry, Jeremy Grantham, and Paul Singer – raising concerns about overextended market sentiment, investors have been on edge at times.

AI bubble fears could be overblown though. Here are three reasons why the AI bull market may have more staying power than skeptics suggest.

AI Valuations Aren’t Crazy

A defining trait of asset bubbles is a major disconnect between asset valuations and their underlying economic fundamentals. In the dot-com bubble of the late 1990s, for instance, many internet stocks were trading at sky-high valuations that were completely out of sync with underlying financial performance. Cisco – which was seen as the backbone of the internet at the time – is a great example here. In early 2000, it was trading on a price-to-earnings (P/E) ratio of around 200¹.

Looking at the AI market today, it’s a very different setup. At present, many stocks within the AI space are actually trading at very reasonable valuations. For example, Nvidia – which is spearheading the AI revolution with its high-powered GPUs and expected to see earnings growth of around 60% this fiscal year – currently trades on a P/E ratio of around 25². Alphabet – which is having success with Gemini 3.0 and expected to post earnings growth of around 30% for 2025 – sports a P/E ratio of around 28². These are not bubble valuations. Given the growth being generated by these companies, these multiples look justified.

Of course, there are some pockets of the AI market that are highly valued. OpenAI – which is still a private company – currently has a $830 billion³ valuation despite only having revenues of around $20 billion⁴. Palantir has a market cap of $420 billion⁵ despite sales of around $4.4 billion². Overall though, valuations aren’t crazy.

There’s No Euphoria in the Market Today

Another hallmark of a speculative bubble is correlated price action, where asset values rise across the board consistently regardless of news or price. This indiscriminate buying is driven by high levels of euphoria, where investors prioritize fear of missing out (FOMO) over financial due diligence, and chase momentum at any price.

This also doesn't appear to be the case here. While some AI stocks are near all-time highs as we start 2026, many aren’t. Oracle, for example, is currently trading about 40% off its highs⁵. It has fallen recently on the back of concerns over the company’s AI capital expenditures and subsequent lack of free cash flow. Other AI stocks that are well off their highs include Meta Platforms, Microsoft, and Broadcom. Ultimately, investors are being very discerning when it comes to AI stocks right now, rewarding those that are executing well and punishing those that may be making mistakes. This is the sign of a healthy bull market, not a bubble.

AI is Delivering Measurable Results

Finally, it’s worth touching on AI itself. Because this is a powerful technology and the setup from a structural perspective is very different to the dot-com boom 25 years ago.

In the dot-com bubble, many business models were built on speculative concepts that had little hope of achieving long-term commercial viability. Take Boo.com for example. In 1999, it tried to build a high-end global fashion store in which consumers could view clothes in 3D and try them on a virtual model, however, at the time, 90% of users were accessing the internet via dial-up modems meaning that it often took several minutes just to load Boo’s homepage. This wasn’t sustainable and Boo.com ended up burning through $135 million in 18 months before collapsing⁶.

Looking at the AI landscape today, we already have tangible solutions that are being used by hundreds of millions of consumers worldwide. Google’s “AI Overviews” feature is a good example here. This is now used by over 2 billion people on a monthly basis⁷. Google is also having success with its Gemini app – it now has 650 million monthly active users⁸.

AI is also seeing rapid adoption within the enterprise space. For example, Salesforce now has 9,500 customers paying for its Agentforce service (which was only launched in October 2024)⁹ while ServiceNow has 1,700 customers using its Now Assist generative AI solutions¹⁰. It’s worth noting that research shows that AI is showing measurable returns in the corporate world. According to a recent report¹¹ from OpenAI, "frontier firms" using AI agents are seeing 40-60 minutes of time saved per employee per day, with heavy users reporting more than 10 hours saved per week.

So, unlike the dot-com boom, which was built largely on potential, the AI revolution appears to be a genuine technological transformation. Anchored by record-breaking corporate earnings and a rapid shift from experimentation to large-scale enterprise deployment, this revolution is fundamentally changing how value is created, captured, and distributed across the digital economy.

The Case for AI Stocks in 2026

Put all this together, and the fundamental outlook for artificial intelligence stocks remains strong. With the technology gaining traction as a real-world productivity driver and valuations looking reasonable, AI stocks could be worth a closer look as we start 2026.

Footnotes:

¹Slashdot, Cisco Stock Hits New All-Time High, 25 Years After the Dotcom Bubble Burst, as of December 11, 2025

²LSEG, as of January 1, 2026

³Investing.com, OpenAI seeks massive $100 billion funding round at $830 billion valuation – WSJ, as of December 18, 2025

⁴CNBC, Sam Altman says OpenAI will top $20 billion in annualized revenue this year, hundreds of billions by 2030, as of November 6, 2025

⁵Google Finance, as of January 1, 2026

⁶Wikipedia, Boo.com, as of January 5, 2026

⁷Tech Crunch, Google’s AI Overviews have 2B monthly users, AI Mode 100M in the US and India, as of July 23, 2025

⁸Google Blog, A new era of intelligence with Gemini 3, as of November 18, 2025

⁹Salesforce, Salesforce Delivers Record Third Quarter Fiscal 2026 Results Driven by Agentforce & Data 360, as of December 3, 2025

¹⁰The Motley Fool, ServiceNow (NOW) Q3 2025 Earnings Call Transcript, as of October 30, 2025

¹¹Open AI, The state of enterprise AI, as of December 8, 2025