Here's Why AI Bubble Fears Are Overblown

"When any stock or sector heats up, it's only a matter of time before people warn about a bubble. An analyst seems to predict a recession every year, and some of the recent murmurings have been about an AI bubble. These fears are overblown and can rob people of compelling long-term returns. Despite AI dominating financial markets for multiple years, it's still early."

"Big tech spending is a major catalyst for the AI rally, and these companies have committed to spending more money this year than they did in 2025. That alone should be sufficient to dispel AI bubble fears. When a sector is set to receive more capital now than it did last year, the companies in that sector are supposed to grow."

"Just because a stock like Nvidia ( NASDAQ:NVDA) is up by 1,300% over the past five years does not mean it is overvalued. Context matters, and with demand for AI chips still surging, it stands to reason that Nvidia stock can continue to rally. Nvidia may become the first publicly traded corporation to reach a $6 trillion valuation in the next 1-2 years."

"The lack of supply has helped some AI companies charge high prices for their products and services. It explains why Nvidia outperformed the S&P 500, but there are multiple parts of the AI supply chain that are in bottlenecks. Energy, materials, AI data centers, and memory solutions are some of the bottlenecks. Each of these resources represents a meaningful long-term opportunity for patient investors."

AI fears can be exaggerated and risk depriving investors of long-term returns, while AI remains in an early growth phase despite market prominence. Big tech firms plan to increase AI-related spending in 2026 compared with 2025, driving further industry expansion and customer demand. Rapid gains in names like Nvidia reflect surging chip demand rather than automatic overvaluation, and Nvidia could reach unprecedented market capitalization. Persistent supply bottlenecks—in energy, materials, data centers, and memory—sustain pricing power and create long-term opportunities, particularly among smaller, under-the-radar companies in the AI supply chain.

Read at 24/7 Wall St.