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How the AI Story Unfolds
- 10 December 2025
- 5 MIN READ
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The overall euphoria and the amount of capital being poured into AI has lately drawn comparisons to the dotcom bubble of the 90s. What both eras have in common are soaring valuations and infrastructure spending, yet many large AI companies of today are powerful incumbents built on strong earnings, cash flows and growth momentum. Having said that, valuation risks remain. Our investment team weighs in as the AI story unfolds.
Key takeaways
01
The Magnificent 7 (i.e. Apple, Microsoft, Amazon, Alphabet, Meta, NVIDIA and Tesla) by November 2025, constituted about 37% of the S&P 500. This makes the markets particularly vulnerable and sensitive to any chatter around AI being a bubble.
02
While there could be some similarities with the dot-com bubble of the 90s, there are many differences too. To begin with, it must be noted that while valuations at the moment do look elevated, these valuations are not just driven by expanding multiples. We are also seeing earnings growing. This was not always the case in the 90s bubble.
03
The capital spends by the top AI stocks have been large, but it is important to see the capex as a percentage of their revenue as well as their cash from operations (CFO). The incumbent firms have solid cash flows and growth momentum.
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