Is the AI Boom a Bubble or a Bonanza? Bernstein Analysts Answer

The artificial intelligence (AI) surge has powered markets to new highs, but is it a sustainable revolution or the next dot-com-style bubble? 

Analysts at Bernstein say the answer is nuanced, with several warning signs of excess even as AI remains a “generational disruption.”

“There’s a big difference between an AI bubble and a stock market bubble,” said Shri Singhvi, Bernstein’s chief investment officer for strategic equities.

“AI is most likely a generational disruption and may turn out to be one of the biggest we have seen in our lifetimes,” though valuations in AI-related stocks “might be in much later innings.”

Others at Bernstein urged caution but stopped short of calling the current boom a full-blown bubble. Lei Qiu, chief investment officer for thematic innovation equities, said: “It’s probably too simple to label the entire AI revolution as a bubble. Historically, we often underestimate the long-term impact of transformational changes while being overly optimistic about short-term revisions.”

Still, Kent Hargis, CIO for strategic core equities, warned that “technology capex is likely to surpass levels previously seen only during the dot-com boom,” adding that red flags suggest a “correction at some point seems likely.”

Bernstein analysts agreed the AI theme remains in its early innings, but valuations, speculative funding, and “circular financing,” such as big firms funding their own customers’ AI purchases, could amplify risks.

Qui concluded that “at some point, it will no longer be a ‘rising tide that lifts all boats’ for anything that mentions the word AI. 

“The short answer is that some companies are true AI winners and deserve the market cap, while many are not. So it’s a good time to be an active investor.”