Assume an AI Bubble. We are all prisoners of our own experience
Is AI a Bubble? It’s an impossible question to ignore, so let’s make another attempt to answer it.
In the run-up to the epic dot-com implosion the Nasdaq Composite index suffered seven separate corrections of more than 10% before finally reaching its peak in 2000.
This raises the issue of the most obvious parallel for the AI excitement. A quarter-century has now passed since dot-com bombed; does this mean that its lessons have not been learned?
Most money managers today do not carry the scars of the dot-com era. Of the approximately 1,700 active large-cap US portfolio managers, just 4% invested through that period.
There is a difference between living through a downturn and merely reading about it.
As someone who lived through the dot-com bubble and burst I have probably been too ready to see other imminent disasters in the years since.
We are all prisoners of our own experience, and while most active managers don’t have direct experience of dot-com, the commentators they read generally do.
Stocks fell some 70% after the top in 2000; that doesn’t mean that anyone would be happy with a fall of 60% from here.
Bubbles are hard to diagnose, but in hindsight the biggest were in technologies that proved to be revolutionary — canals, railroads, cars and the internet. They do, however, rely on cheap money.
Charles P. Kindleberger in his classic Manias, Panics and Crashes,
"There is nothing so disturbing to one's well-being and judgment as to see a friend get rich."
https://englundmacro.blogspot.com/2025/09/one-of-greatest-investors-of-all-time.html
produced a schema followed by all the great bubbles.
John Authers Bloomberg October 1, 2025
There might well be a bubble in the amount people are prepared to spend on AI, in the earnings that the Magnificents make on the back of that, and in projected earnings for the future.
John Authers September 30, 2025
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