The surge in artificial intelligence (AI) has pushed tech stocks sharply higher, leading many to wonder whether we’re in another “dot-com style” bubble.

We believe the comparison is overstated. Here’s a simple breakdown.

Why Some People Worry About a Bubble

1. A handful of tech giants dominate the market

Tech companies now make up over a third of the S&P 500 — and more than half if you include tech-related names like Amazon, Meta and major payment companies. When a small group drives most returns, the market can feel narrow and vulnerable.

2. Valuations are high

The S&P 500 is trading near the top of its 20-year valuation range, meaning expectations are very optimistic. High valuations don’t predict a crash, but they can make markets more sensitive to disappointing news.

3. Big, interconnected partnership deals

Some recent AI-related partnerships involve massive sums of money circulating within the same ecosystem. This creates questions about whether all the demand is real or partly “self-funded.”

Why This Isn’t the Dot-Com Bubble

1. Today’s tech leaders have real profits

In the 1990s, many companies had big promises but no earnings. Today, major AI leaders (Microsoft, Apple, Google, Meta, Amazon, Nvidia) are producing huge profits — their earnings have grown 127% since this bull market began.

2. Businesses are actually using AI

AI is being adopted across healthcare, mining, research, manufacturing, and every major industry — not just by consumers playing with apps. This is driving real, broad-based demand.

3. AI spending continues to accelerate

The largest tech companies are projected to spend $460 billion on AI-related infrastructure in 2026 — a major driver of economic growth. Unlike the 1990s, these companies have the cash to fund these investments.

4. More diversified business models

Big tech companies aren’t dependent on one product or idea. They generate revenue from hardware, software, cloud computing, advertising, streaming, and more — which adds resilience.

Bottom Line

A pullback is possible — and normal — given how fast markets have moved. But we believe the long-term AI story is structural, not speculative.

The fundamentals behind today’s leaders look far stronger than those during the dot-com era, and the demand for AI continues to grow.

Source: globeandmail.ca