The stock market has reached new records, but experts are warning of a potential bubble in AI stocks. However, some on Wall Street remain unconvinced, citing alternative valuation metrics that show a more favorable picture. They argue that companies like those in the AI space are better than their dot-com era counterparts.
Some point to earnings growth, cash flow, and profit margins as evidence that valuations are not high. For example, Morgan Stanley shows that the median free cash flow yield for top 500 companies is roughly triple what it was in 1999. This suggests a more robust industry with healthier balance sheets.
However, others caution that the historical playbook may be broken, and that past speculative bubbles were not as complex or interconnected as current AI stocks. They argue that talking about an AI bubble can actually make investors less vigilant and less prepared for potential risks.
One area to watch is the increased dealmaking in the AI space, which has drawn criticism from some experts. However, others believe this trend will not contribute significantly to a future bubble. It’s essential to keep your antenna up and be aware of new developments, rather than getting complacent about the risks of an eventual crash.
Source: https://www.businessinsider.com/stock-market-bubble-crash-fears-overblown-valuation-metrics-1999-comparison-2025-10