Core Viewpoint - The debate on whether the rally in AI stocks has turned into a bubble is ongoing, with differing opinions from Wall Street investment banks regarding the sustainability of the current market enthusiasm [1][2]. Group 1: Current Market Sentiment - Alpine Macro suggests that the market does not yet exhibit classic signs of speculative excess, with investor skepticism remaining high and "AI bubble" discussions indicating caution rather than complacency [2]. - Sentiment surveys reflect a balanced outlook, contrasting sharply with the euphoria seen in the late 1990s, where bullish sentiment was dominant [3]. - Current stock valuations, while elevated, are not disconnected from reality, with the equal-weighted S&P 500 estimated to be approximately 25% undervalued according to the Fed model [3]. Group 2: Comparison to Historical Context - The cap-weighted index appears fairly valued, and the "Magnificent Seven" stocks trade at a premium based on growth expectations rather than speculative behavior [4]. - In contrast to the dot-com era, where growth stocks traded at over double their bond-implied fair value, current leading stocks like Nvidia Corp. trade at about 30 times forward earnings, supported by rapidly growing profits [4][5]. Group 3: Investment Dynamics - There is little evidence of widespread overinvestment in AI, with major tech firms primarily funding AI initiatives through internal cash flow rather than debt, and IPO activity remaining subdued [5]. - The investment boom in AI is considered to be in its early stages compared to the internet boom [6]. Group 4: Potential Future Risks - Alpine Macro warns that the conditions for a bubble may be forming, as AI meets the criteria of a major technological shift and broad access to speculation, with the potential for cheap money emerging in 2026 [7]. - The Federal Reserve is expected to ease monetary policy in 2026, which could release approximately $13 trillion currently held in money market funds and demand deposits into risk assets [9]. - Financial markets are anticipating over two rate cuts by the end of 2026, with expectations concentrated in the latter half of the year [10][11]. Group 5: Conclusion - The conclusion from Alpine Macro is that while an AI bubble is not inevitable, the risk is increasing, and the Federal Reserve will play a crucial role in the future trajectory of the AI market [12].