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Despite recent market pullbacks, the AI sector is not experiencing a bubble bursting but rather a healthy market correction where investors are becoming more selective about AI investments.

What caught our eyes this week

Is the AI bubble popping?

The Nasdaq-100 index is about 7% off its high through Friday. Even another quarter of solid Nvidia earnings wasn’t enough to get it back on track. Is this the start of a bubble deflating? We don’t think so. What we see is investors being more discerning about the durability of AI innovation on a company-by-company basis, scrutinizing funding sources, paths to profitability and, more recently, how it’s accounted for in financial statements. These are good questions to ask; that they are being asked indicates a degree of healthy market sentiment not present in past bubbles. We believe the proliferation of AI in the economy represents an enormous opportunity for those who can position themselves to benefit. There are large sums of money being spent trying to gain pole position, mostly by companies with robust streams of existing cash flow and, more recently, debt issuance. That debt looks high in absolute terms but is less intimidating relative to the massive enterprise values of those issuing it. As with any new technology, there will be winners and losers, with volatility along the way for both. For a deeper dive, see our Insight, “Should Investors Fear an AI Bubble?”

Nasdaq-100 index closing price as of 11/21/2025

CHART OF THE WEEK: Cerity Partners, Ycharts, FactSet as of 11/21/2025

Past performance does not guarantee future results.

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