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It’s 11:47pm. You’re 23 posts deep in a finance subreddit asking yourself, “Wait… are we in an AI bubble or do I need to touch some grass?”

Ever since OpenAI dropped ChatGPT at the end of 2022, the world has sprinted towards a future driven by AI. And suddenly, every company has “AI strategy” in their bio. And every CEO is touting “AI” in their yearly reports.

But the numbers are hard to ignore. 

A 2025 McKinsey survey found 88% of organisations now use AI in at least one business function. And ChatGPT didn’t just go viral once - it overtook Tiktok to become the most downloaded app of 2025. 

No surprise, the markets are factoring this in. A handful of US tech giants now dominate the sharemarket and have powered three years of double-digit gains. 

Translation: if you own “the market” (e.g. ETFs that track the S&P500), there’s a decent chance you own a whooole lot of AI related mega-cap tech. 

And when the biggest companies on Earth are all chasing the same shiny thing, investors start hearing that classic warning in the back of their head:

Don’t put all your eggs in one basket.

So, will history repeat another dot-com bubble, or is AI smart enough to avoid the fall?

Here’s why investors are worried about a bubble

While there's no official definition of a market bubble, today's AI boom ticks a few familiar boxes:

👉 US shares, especially big AI companies, are trading well above their historical averages;

👉 The top 10 stocks now make up about 39% of the S&P500, which is even more concentrated than during the dot-com boom (around 29%);

👉 Companies are pouring billions into AI, driven by strong belief and hype around its future potential;

👉 Retail investors are going all in too and a huge chunk of trading is flowing into the same big tech names - meaning the market is increasingly reliant on these companies.

So how can we measure this?

Investors often use something called a forward price to earning ratio (a.k.a. forward P/E) to assess what the market is willing to pay for a share, based on the company’s expected future earnings. 

A high forward P/E doesn’t automatically mean there’s going to be a bubble, but when a company’s growth doesn’t match investors’ expectations - the market starts to wobble. 

• So a low forward P/E = “we’re not expecting much” 
• But a high forward P/E = “this better be huge!” 

Rewind to the dot-com era when everyone was buying into the technology hype. The forward earnings ratio for dot-com leaders back in 2000 was about 52. And today’s AI-heavy tech companies? Around 26.8. 

That’s elevated, but it’s not insane dot-com level hype. 

So the key takeaway is: the current AI situation does have similarities to past bubbles, BUT it’s a lot less extreme. The market looks excited, not unhinged.

Diversification Is Back

2026 might reward investors who own more than just the tech giants.

So don’t forget the world outside the US. Markets like emerging economies and Japan may offer good-value exposure and geographical diversification. 

Even amongst the AI craze, other sectors like healthcare and industrials could see a serious glow-up from the AI infrastructure boom.

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