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As the 25th anniversary of the dot-com bubble burst approaches, it’s not crypto bros or meme stock enthusiasts keeping Wall Street veterans up at night. It’s the AI gold rush that has them experiencing déjà vu in technicolor. While Bitcoin’s wild ride and GameStop’s revenge of the retail traders have provided plenty of speculative drama, it’s generative AI that’s triggering the most visceral flashbacks to 2000's tech implosion.
The script feels eerily familiar: breathless pitches, astronomical valuations, and PowerPoints where “generative AI” has simply replaced “e-commerce” in otherwise identical slides. As tech giants pour billions into their AI arms race, investors are left with the trillion-dollar question: Are we witnessing the birth of the next internet, or just another spectacular bubble inflating before our eyes?
Goldman Sachs, for its part, is firmly in the “this time it’s different” camp. The bank’s chief global equity strategist Peter Oppenheimer waves away bubble concerns with a stack of spreadsheets showing the tech sector’s earnings per share have skyrocketed 400% since before the financial crisis, while all other sectors limped along with a measly 25% growth. “The drivers of this success have reflected their ability to leverage software and cloud computing and to fuel high profitability generated by extraordinary demand growth,” Oppenheimer writes.
But Oppenheimer himself can’t ignore some troubling red flags. A handful of tech behemoths — with Nvidia leading the AI chip charge — now command a staggering portion of the entire market.
“With markets being increasingly dependent on the fortunes of so few, the collateral damage of stock-specific mistakes is likely to be particularly high,” he writes. Unlike the dot-coms that could launch with little more than a server and a dream, today’s AI players are burning cash at unprecedented rates. “AI is driving a major capex boom and threatens to stifle the high rates of returns that have characterized the sector over the past 15 years,” Oppenheimer points out, sounding less bullish with each revelation.
The market watchers that believes that we are in a bubble aren’t mincing words. Howard Marks, the Oaktree Capital co-founder who correctly called the 2000 crash, plastered “cautionary signs” all over his January investor memo, ominously titled “On Bubble Watch.” Marks points out several alarm bells that are ringing for him: investors chasing returns with disregard for risk, sky-high valuations justified by dubious “new paradigm” arguments, and markets displaying textbook signs of “irrational exuberance.”
Nobel Prize-winnning economist Paul Krugman sees the market barreling toward the same cliff, pointing out that the S&P 500's price-to-earnings ratio is flirting with 30 — uncomfortably close to 1999's level of 93, which Krugman says “looked, and was, crazy.” Krugman does spot one twist in this market rerun: “AI fever is concentrated on a handful of companies — the Magnificent 7 — most of which are already entrenched quasi-monopolies.” (The sassy italics are his.)
Krugman cuts through the AI hype with a question investors should be asking more often: “How much bigger can the market for [Microsoft] Office or Google search get? I understand that these companies feel the need to invest in AI for defensive purposes, to fend off potential competitors. But this need should if anything make them less rather than more profitable.” In other words, Microsoft didn’t spend $13 billion on OpenAI because it needed new customers. It was playing defense in a zero-sum game.
Among the tech bubble forecasters, none sound more alarmed than Gary Marcus, the AI researcher who’s been right before about the technology’s limitations. In his view, we are clearly in a bubble not long for this world, although he doesn’t think generative AI is going anywhere.
“Generative AI itself won’t disappear,” he writes. “But investors may well stop forking out money at the rates they have, enthusiasm may diminish, and a lot of people may lose their shirts.”
For investors caught between FOMO and financial prudence, even Goldman suggests hedging your bets. While dismissing bubble concerns with one hand, the investment bank extends the other with advice to “look to diversify exposure to improve risk-adjusted returns.” Classic Wall Street: bullish in the headlines, cautious in the footnotes.
The real debate isn’t about whether AI changes everything — it’s about timing and who survives to see it. Twenty-five years ago, the internet did transform business, education, and society, just not on the timeline or in the ways dot-com investors expected. Amazon emerged from the wreckage, but only after its stock plunged 90%. Google thrived, but Excite, Lycos, and AltaVista vanished.
As Marcus points out, today’s AI darlings face a similar reckoning: “Companies that are currently valued at billions of dollars may fold, or [be] stripped for parts. Few of last year’s darlings will ever meet recent expectations.”
The AI revolution is coming. But revolutions have a way of devouring some of their early and most eager adherents.