AI Bubble Talk May Be the Real Bubble

Core Viewpoint - There is increasing concern among investors about a potential AI bubble, drawing comparisons to the internet bubble of 2000 [1][2]. Group 1: Market Sentiment - Investors holding AI-related stocks and ETFs, such as Invesco QQQ Trust (QQQ) and Invesco NASDAQ 100 ETF (QQQM), are feeling uneasy due to bubble discussions [2]. - Despite bubble concerns, many market observers believe that AI investing is not necessarily in bubble territory [2]. Group 2: Performance of ETFs - QQQ and QQQM are currently experiencing multiyear bull markets, largely due to significant investments in leading AI companies, particularly the "Magnificent Seven" [3]. - The current era of AI enthusiasm is fundamentally different from the internet bubble, as leading cloud service providers have strong balance sheets and positive cash flow [4][5]. Group 3: Investment Dynamics - The leading cloud service providers have self-funded their AI capital expenditures primarily through operating cash flows, contrasting with the debt-funded investments during the late 1990s internet bubble [5]. - There is a significant runway for AI adoption, with agentic and physical AI expected to be future growth drivers [5][6]. Group 4: Valuation and Future Outlook - Current valuations of AI stocks appear attractive compared to internet stocks from 25 years ago, suggesting that the AI theme is not yet in bubble territory [6]. - BNP Paribas believes that while expectations for AI leaders are high, valuations remain reasonable, and they are monitoring potential risk factors such as industry consolidation and disruption [7].