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The ongoing boom in artificial intelligence (AI)-related stocks does not yet exhibit the typical characteristics of a late-stage speculative bubble, though risks remain, particularly due to market concentration, according to a report by Amundi Investment Institute.
The report noted that while there are similarities between the current AI-driven market rally and the dot-com boom, the present phase lacks the dynamics usually associated with the later stages of a bubble. However, it cautioned that this does not mean the theme is low risk. It stated, "Even if there are a lot of similarities between the AI and dotcom booms, our analysis suggests that the current AI episode lacks the hallmark 'explosive valuation dynamics' typically associated with late-stage bubbles". A key concern highlighted in the report is concentration risk, with a narrow group of AI-related stocks driving a disproportionate share of overall market returns. This has resulted in standard equity allocations carrying significant implicit exposure to the AI theme and to long-duration growth stocks. The report suggested that investors should focus more on managing risks related to potential drawdowns rather than attempting to time a possible market correction. It emphasised the importance of monitoring the sustainability of earnings and capital expenditure trends, along with indicators such as market breadth, issuance activity, and any re-acceleration in valuations, which could signal a shift towards more speculative behaviour. Between 2021 and 2026, the S&P 500 delivered strong returns, largely driven by companies leading in artificial intelligence. During this period, AI-linked stocks recorded a cumulative gain of 115.2 per cent, significantly outperforming the broader S&P 500 Index, which returned 83.4 per cent, and portfolios excluding AI stocks, which delivered 72.0 per cent. Despite this outperformance, the report pointed out that such phases of leadership by specific sectors are not uncommon in equity markets and do not necessarily indicate the formation of a bubble. Drawing comparisons with historical trends, the report said that the current period from 2023 to 2025 shows similarities to the early phase of the dot-com cycle between 1995 and 1997. It added that the present market environment does not resemble the later stages of a speculative bubble, which are typically marked by excessive optimism and investor euphoria. So the report highlighted that while the AI theme continues to drive market performance, investors need to remain cautious and focus on underlying fundamentals and risk management, rather than assuming the presence of a speculative bubble at this stage. (ANI)
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