The AI-Fueled Market: Rocket Ship or Bubble Ready to Pop?

📆This Week’s Topic

This week we are talking about fears of the AI bubble. The stock market has been going crazy in the past few month driven mostly by huge gains from AI companies, even though AI companies are losing massive amounts of money. Today I am going to discuss what the AI bubble is and why if this continues the stock market could take a tumble.

💳 Cause & Effect

The current situation of the stock market is very interesting because companies like NVIDIA and AMD are spending billions of dollars investing in technology and AI. Investors are responding by buying more shares, which leads to companies spending even more on AI and technology. It is estimated that over 80% of U.S. stock market gains are due to AI companies. This has caused a significant reliance on the AI market, whether we realize it or not. Now, the entire stock market hinges on these AI companies. At the same AI companies like OpenAI that are losing money.

📊 Statistics

Even though the stock market has increased 7% this year and over 60% in the last five years, it has taken a small decrease; the stock market went down 1.65% today. This is important to know as their have been countless record highs set on the stock market this year, powered by huge gains of AI companies. Big companies like Amazon, OpenAI, JPMorgan, & many other big names are worried that the market is on the cusp of a crash.

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🔚 Outcome

The big question is whether AI is a boom or a bubble. If it is a boom, then these companies will get more valuable and this tech is providing for the market. If it is a bubble then AI companies will grow for a bit but they aren’t actually getting more valuable when the valuations increase, soon after that, the market would most likely suffer a crash. We’ve seen this in the past, in 2008 the entire market was based off of the mortgage bonds and when they became less reliable and the market crashed. In the 1990s, everyone poured the money into internet companies but they weren’t making any money and the market crashed. The stock market loss doesn’t completely define whether AI is a boom or a bubble. But looking back to the internet example, we recovered and now internet companies make up about 40% of the entire S&P 500 capitalization.

⏳ Final Summary

In summary, the stock market is heavily reliant on AI companies, which account for almost 80% of the gains in the US stock market this year, approximately 7%. The major question was whether AI represents a boom or a bubble. This is crucial because if it is a boom, then AI companies are genuinely providing value, their worth will increase, and AI will become a staple in the future, much like the internet did. However, if AI is a bubble, it means that when AI companies increase their valuation, they are not providing real value. Consequently, if the bubble bursts (as consumers realize this and start selling their shares), the market could be headed for a crash. Therefore, whether AI becomes a staple or leads to a market crash is the key question regarding how the stock market will perform for the rest of this year and the beginning of 2026.

🙏Thank You & Important Information

Anyway, thank you so much for this edition of Friday Finance. If you are really enjoying our article please send it to a friend. You can do so by scrolling down and clicking the button labeled ‘click to share’. Anyway, thank you so much and I will see you next week.

Best,

Jacob Gans

Friday Finance