Photo: Enguerrand Artaz © LFDE

By Enguerrand Artaz, Strategist, La Financière de l’Échiquier

In recent weeks, Google searches for the risk of an “AI bubble” have hit an all-time high, according to Google Trends, a sign of growing unease about how long the theme can keep driving the stock market. Market conditions are ripe for such jitters: since their early-October highs, the Nasdaq 100 has fallen 7% and the Philadelphia Semiconductor Index (SOX) has dropped 19%[1]. Meanwhile, the troubles at neocloud provider CoreWeave have put pressure on credit markets. But is “bubble” really still the right word?

The term inevitably conjures up 2000 and the dotcom bubble. Yet today’s equity market backdrop bears little resemblance to that era. The Nasdaq 100 has certainly performed strongly, returning an average of 25.6% a year over the past three years, but that is a far cry from the exuberance of the late 1990s, when the index gained an average of 58.6%[2] a year between 1995 and 2000. The same holds true for valuations. At a 12-month forward price/earnings[3] (P/E) ratio of just over 20x, the Nasdaq 100 is trading below its 20-year average. One could fairly argue that this moderate multiple simply reflects very high earnings expectations. Even so, if those forecasts were cut by 30%, the index’s P/E would rise to around 29x, close to its 2021 level at the height of the post-Covid rebound. That is undoubtedly high, particularly given where interest rates are, but still a long way from the 60–65x seen in 1999.

Equity markets are undeniably expensive, perhaps a little complacent, and by no means immune to a sharp sell-off should AI momentum falter. But talk of a bubble makes little sense in light of current valuations and performance trends. If anything, markets appear to be making the necessary adjustments in an orderly fashion. Take semiconductors. As investors start to wonder whether growth in the chip cycle may be close to peaking, the global sector index has already de-rated to 0.9x the valuation of global equities, near its lowest level in 20 years. In credit markets, CDS[4] spreads on the most highly leveraged names, such as CoreWeave, have already widened significantly. This shows that lenders are not blind to the fragile balance sheets of certain AI players, and are not waiting for default risk to become imminent before demanding higher compensation.

In our view, then, investors should not be worried about market levels today. If there is an AI bubble, only a small part of it is visible in listed markets. The real bubble risk lies in capital expenditure, particularly on data centres, and even more so in the financing structures behind this infrastructure. The danger is a funding chain that has become massive, complex and circular all at once. Compute contracts signed by companies that still depend on fundraising are being used to finance GPUs and data centres whose profitability, in turn, relies on sustained demand. If AI monetisation disappoints, client solvency, contract values and the value of assets pledged as collateral could all deteriorate simultaneously. Lenders would then tighten their terms, forcing the most indebted players to cut investment or offload capacity at fire-sale prices. That would accelerate the fall in prices and recovery values, and losses could spread to private credit funds, insurers, securitisation vehicles and, ultimately, the real economy.

That, rather than equity multiples, is where we believe the risk of an AI bubble lies today: in financing.

Disclaimer: The data and opinions provided by LFDE, together with any sectors and securities mentioned, are for information purposes only and do not constitute an offer to buy or sell any security, investment advice or financial analysis. Past performance is not a reliable indicator of future performance and is not constant over time.

[1] Performance as of 22/10/2026

[2] Performance excluding reinvested dividends

[3] Company valuation ratio

[4] Credit Default Swap: insurance against the default risk of a debt issuer.

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