AI Bubble Warning: Are We Heading for Another Dotcom Crash?
By Boring Money
20 Nov, 2025
It may be 25 years ago, but the shadow of the Dotcom crash still looms over stock markets. Investors are starting to look at the soaring share prices and lofty capital spending associated with artificial intelligence and wonder whether there is a Dotcom 2.0 in the making. Are their fears justified?
A number of high-profile commentators and institutions have sounded the alarm. The International Monetary Fund (IMF) and The Bank of England have both warned about the focus on AI, while leading figures such as Jamie Dimon at JP Morgan and Alphabet boss Sundar Pichai have also introduced a note of caution, saying there are elements of irrationality in markets.
For the time being, however, this hasn’t influenced valuations. There have been wobbles in AI stocks, but nothing that yet resembles a looming crash.
If you just look to market returns, you'd say we're back to the races…AI remains the dominant driver of markets…and the concentration we've seen over the last couple of years really is back in full flow.
He does, however, see a change in tone.
As much as the market outcome is still very solidly in the AI camp, there is a different tone in the reportage around it. A year ago, a couple of years ago, it was very hard to find anybody that was painted a cautious picture…That seems to not be the case today. You've seen increasing concern around the concentration in the US, and increasing concern around the valuations.
He says the most commonly searched-for investment-related social media term at the moment is 'stock market bubble'. This fear may be enough to shift valuations:
If the consensus changes to its being in a bubble, you'll see the market react to it. Sentiment remains absolutely key when it comes to AI and these expensive but brilliant tech names in the US.
Is this caution warranted? Certainly, there are some uncomfortable similarities with the Dotcom boom and bust: (the magnitude of spending, for example). JP Morgan Asset Management points out that there has been an investment surge. This has largely been driven by the hyperscalers (Meta, Alphabet, Microsoft, Amazon, and Oracle), who are projected to allocate $342 billion to capex in 2025[1], a 62% increase from last year’s 67%.
There are also knock-on effects. Data centre construction hit a record $40 billion annual rate in June, it says, up 30% from last year. “AI-related capital expenditures contributed 1.1% to GDP growth, outpacing the US consumer as an engine of expansion.”
There are also worrying signs among individual companies. Oracle, for example, has invested billions of dollars to build its cloud and AI infrastructure this year, despite a debt pile of $100bn. The company appears to be making a significant bet on the future profitability of its AI operations.
A hallmark of any self-respecting stock market bubble is not just the dramatic rise in share prices but also the surge in corporate spending. It’s that coalition between managements eager to grow and investors cheering them on with ever-larger infusions of capital that lays the groundwork for future disappointment. When managements go too far—giddy on easy money and optimistic forecasts—they sow the seeds for a bust created by their own overexpansion.
That risk looms large today, given the enthusiasm around AI.
He points out that:
Vastly more of its money has come from investors than from customers. Add in the circular money flows—the “infinite money glitch”—between the likes of OpenAI, Nvidia, and Oracle, and alarm bells should be ringing.
Yet even he admits that AI looks genuinely transformative. Adoption remains at an early stage relative to its full potential, and while its impact may be unclear, it is undoubtedly revolutionary. Alison Porter, portfolio manager at Janus Henderson, says AI looks set to be the fourth wave of technology:
Importantly, waves are different to themes. Themes for us include 3D printing, cybersecurity, and electric vehicles; they tend to have specific end markets and a narrower focus.
Waves, however, are defined by their impact across the whole economy. They create thematic ripples and, importantly, require investment across every layer of the technology and communication stack. This ranges from silicon, compute, storage, networking to software, devices, power and connectivity. Each wave has sequentially connected more people, devices, and required incrementally more investment. The investment required for each wave has taken longer and been greater in magnitude than investors anticipate for multiple years.
Equally, while the Dotcom bubble was characterised by speculative valuations for companies with low revenues and zero profits, today just 20% of technology companies are unprofitable, says Porter. That is significantly lower than the 36% observed back in the internet era. Technology companies have the strongest balance sheets across sectors.
This is changing at the margins, with some technology companies starting to issue debt for the first time to fund AI expansion. Alongside Oracle, Meta, and Alphabet have issued large amounts of debt to finance their artificial intelligence ambitions. For the time being, this debt looks well-controlled, but it is something investors need to keep an eye on.
As Preston says, “Artificial intelligence is real, and it will change the world—perhaps in ways we can’t yet imagine.” However, there are signs of excess appearing in the market. He continues by pointing out that it is difficult to judge whether today’s early leaders will dominate or whether they will falter, paving the way for new winners to emerge from the ashes.
For investors, it is dangerous to take a binary approach. Sell out of AI, and investors risk missing out on one of the great technology revolutions and one of the clear areas of strong growth in the economy. On the other hand, there is a meaningful risk of short-term losses. The boring answer is diversification – ensuring that there is a counterweight to any AI exposure in a portfolio that can minimise the impact of any volatility.
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[1] J.P. Morgan, November 2025
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