Are We in an AI Bubble?

Lately, one of the financial media’s favorite talking points has been whether we’re living through an “AI bubble” and whether lofty valuations in U.S. equities mean investors should brace for a painful reset. I’ll be the first to admit it: tech valuations are elevated, especially among the leading AI players like Nvidia, Meta Platforms, and Advanced Micro Devices.

But high valuations alone don’t automatically equal a bubble. In my view, today’s AI-driven market looks meaningfully different from the late-1990s tech boom, and those differences matter. Here are several reasons why I believe current valuations are justified, and why a Tech Bubble 2.0 isn’t the base case.

Earnings Growth Remains Healthy

The simplest argument against the “bubble” narrative is that corporate fundamentals are still strong. Across the U.S. equity market, earnings growth remains robust. Current estimates suggest S&P 500 earnings will finish 2025 up about 10%, with forecasts calling for even faster growth, roughly 13.5%, in 2026.

*Chart produced by Carson Wealth Investment Research

And when you zoom in on the companies driving the AI narrative, that earnings strength becomes even more pronounced. Nvidia, for example, recently reported quarterly earnings that decisively beat analyst expectations on both revenue and profits.

Over the last 15 years, Nvidia’s annual operating profit trend illustrates just how explosive this growth has been. The company has expanded operating profit from around $4 billion three years ago to roughly $110 billion over the last twelve months. That kind of earnings acceleration is rare and in markets, rare growth usually commands a premium.

In other words, these companies aren’t just priced for perfection on hype alone. They’ve been growing into their valuations in real time. And because earnings growth is the primary long-term driver of equity returns, sustained strength here keeps me constructive on the broader U.S. equity trajectory.

Equity Profit Margins Should Benefit from Lower Operating Costs

Another key difference between today’s AI cycle and past speculative periods is that AI is already improving business efficiency in tangible ways. Operating costs are beginning to fall as companies adopt AI tools that streamline workflows, reduce routine tasks, and boost productivity.

Research from BlackRock highlights this shift clearly, showing how AI-driven efficiencies are already reducing employee headcount in various “routine work” categories across multiple demographics. BlackRock believes this decline in routine work will accelerate further over time.

From an employment angle, that trend raises fair concerns. But through the lens of corporate profitability, it points toward higher margins and stronger earnings power. Lower costs + higher output is exactly the kind of structural tailwind that can support premium valuations longer than skeptics expect.

The Macroeconomic Backdrop Supports U.S. Tech Growth

Looking ahead, the policy environment also appears supportive for the AI and tech sectors. The current U.S. administration has repeatedly emphasized the strategic importance of “winning the AI race.” That public stance matters because it signals that fostering AI innovation is a national priority, and that policymakers are looking for ways to encourage a welcoming environment for emerging technologies, including potentially easing legislative friction where possible.

At the same time, monetary policy is likely to become more favorable. Market expectations imply that the Federal Reserve may deliver roughly 3–5 interest-rate cuts by the end of 2026. A lower-rate environment tends to support growth stocks for a couple of straightforward reasons:

• Cheaper borrowing costs help companies invest, expand, and innovate.

• Lower discount rates mathematically support higher equity valuations, because future earnings are worth more when discounted at a lower rate.

So while valuations are high, the macro backdrop provides real support for why they may stay high.

It’s worth remembering that “expensive” doesn’t automatically mean “bubble.” Bubbles are characterized by valuations detached from fundamentals. Today, the fundamentals, real earnings, real infrastructure, real demand are exactly what’s driving the AI leaders higher.

A quote I heard recently captures the contrast well:

“Unlike the tech bubble, today’s AI companies have real infrastructure, real demand, real growth, and real revenue and earnings.”

That doesn’t mean volatility can’t happen. Markets always cycle. But based on the evidence in front of us, AI looks far more like a durable investment theme than a speculative mirage.