What happens if the AI stock market bubble bursts?
The market’s hottest stocks — Apple, Nvidia, Meta — mirror the hype of past crashes. Is the AI optimism about to burst?
If one theme has suffused the stock market in 2025, it might be this paradox: Investors know all about the AI bubble, but they’re buying AI stocks anyway.
In a new survey by The Motley Fool, 93% of investors with AI stocks said they plan to hold or expand those investments over the next year. Only 7% plan to decrease their AI holdings.
“I think most investors view AI as transformative technology, game-changing technology,” said Asit Sharma, a senior investment analyst at Motley Fool.
But talk of the AI bubble is everywhere.
The stock prices of the “Magnificent Seven” tech giants (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla) grew by 698% between 2015 and 2024, compared with a 178% return for the S&P 500 as a whole, according to Motley Fool. Some market observers warn that outsized expectations about artificial intelligence have driven those gains.
AI stocks are overpriced. Investors don’t care.
Largely because of the Magnificent Seven’s stupendous growth, the stock market is historically overvalued. In consumer terms, stocks are overpriced.
How big is the bubble? Consider a metric called the cyclically adjusted price-to-earnings ratio. It measures whether stocks are overvalued or undervalued. As of Dec. 23, the CAPE ratio for the S&P 500 stands at 40.59.
Historically, the only time the ratio ranged higher was at the peak of the dot-com bubble, in 1999-2000. That bubble eventually burst.
Despite the bubble talk, AI stocks have continued their ascent in 2025. Nvidia was up about 36% through Dec. 23. Alphabet was up about 66%.
Investors keep buying AI stocks even though many believe the stocks are historically overpriced.
In the Motley Fool survey, published Dec. 15, two-fifths of investors said they believe AI stock prices reflect a “speculative bubble,” rather than a “sustainable trend.” The survey reached 2,600 adults.
In another survey, the financial journalism site Investopedia found that two in three of its readers believe AI-related stocks are overvalued. That December survey reached 815 investors.
When Investopedia asked readers to pick one stock to own for the next decade, most of them named companies in the Magnificent Seven.
“Most of our readers in our survey feel like AI stocks and AI-related stocks are in a bubble,” said Caleb Silver, editor in chief of Investopedia. “But when we ask them what’s in their portfolio, it’s those same stocks.”
Investors are torn on AI stocks
The AI paradox has investors torn. Some have sat on the sidelines, avoiding AI stocks for fear of a bubble, only to watch them soar. Others have invested heavily in AI, and now…
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