Will the AI boom ever end?

Tech megacaps are locked in an AI capex arms race. Despite AI productivity gains in several sectors confirming its lasting value, with many tech stocks trading at nosebleed earnings multiples, talk of AI bubbles just won’t go away. Effective diversification of multi-asset portfolios should enable investors to maintain exposure to AI innovation, all the while helping to smooth out the inevitable market corrections.

03 November 2025

Investors have given off mixed signals in response to the Tech sector’s reported Q3 earnings, with Meta down -11% on 30 October, and volatility affecting all the technology megacaps in the wake of their latest updates. While reported earnings for the so-called AI superscalers were generally strong in themselves, investor consensus on the outlook may be starting to fracture.

The problem is neatly encapsulated by Microsoft’s Chief Financial Officer who declared that “When you see these kinds of demand signals, and we know we’re behind, we do need to spend.” Big tech can’t build data centres and cloud services fast enough. This comes at a difficult time in terms of market valuation. The tech-heavy Nasdaq-100 index - a shorthand for US large cap tech - now trades at a nosebleed-inducing 32x forward earnings*. It is up nearly 24% year-to-date to end October compared with ‘just’ 17.5% for the broader-based (but still one third tech) S&P 500 and 8.8% for an equal-weighted version of the same index*. To say that technology is influencing the US – and indeed global - index would be an understatement. It is dominating it.

Unsurprisingly, mentions of the words “AI Bubble” keep spiking in the news. On this basis, caution around AI in particular and technology stocks in general, would seem warranted. But AI’s impact on the real economy is a good indicator of its intrinsic worth, and it is starting to have an effect. A recent study by Microsoft Research identified copywriting, teaching, sales, translation and customer service all being transformed by AI. While potentially worrying or alternately empowering for those involved, AI disruption will inevitably lead to productivity gains at the macro level. The unknowable therefore is less whether AI is intrinsically going to change the world as how long and how far stock market momentum can keep going. But the better question to ask might be how to prepare for any market adjustment without compromising participation in the market’s long-term trajectory. Multi-asset portfolios offer a compelling answer via diversification. Rather than agonising over whether to underweight equities generally and technology stocks in particular versus a given index, investors should focus their intellectual bandwidth on selecting accompanying assets which hold the line if and when markets adjust downwards, as they periodically do. If done competently (see your professional advisor) it should ensure continuing participation in all the innovation and ingenuity corporations capture over time - including AI - while offering a degree of smoothing for the inevitable upsets and reversals on the way.

“AI Bubble” mentions in the news

From 30 Dec 2022 to 27 Oct 2025

Julian Howard is Chief Multi-Asset Investment Strategist at GAM Investments. This blog represents the views of GAM’s Multi-Asset team.