Is there an AI bubble? Is it about to burst? Your questions answered

5 November 2025

AI has been big news throughout 2025. Now, the Bank of England (BoE), along with other key players, such as Jamie Dimon, Chairman and CEO of JPMorgan Chase, and Sam Altman, CEO of OpenAI, have warned that a “significant correction” is increasingly likely.

Keep reading to understand what’s happening as we answer some key questions you may have.

Is there an AI bubble?

Stock market bubbles happen when values and asset prices in a specific sector rise rapidly. Bubbles are often fuelled by investors buying on speculation. When the hype fades, investors may sell quickly, causing the bubble to burst.

According to CNBC, more than 1,300 AI startups are now valued at over $100 million, and there are 498 AI companies with valuations of $1 billion or more.

Furthermore, several of the world’s largest technology companies have invested billions in AI. Amazon, Meta, and Microsoft have invested heavily in building AI data centres.

Total AI spending is expected to hit $375 billion this year and is expected to reach $500 billion in 2026, according to a UBS report.

Governments have also been bullish.

In September, a press release from the UK government stated: “A total of £2.9 billion in private support and average deals worth £5.9 million have set the stage for further investment and new opportunities for both AI companies and financial backers alike.

“It means British AI companies alone now contribute £11.8 billion to the UK economy – double the amount in 2023 – while AI employment tops 86,000 across the country.”

Why now?

Jamie Dimon, CEO of JPMorgan Chase and the world’s most powerful banker, was one of the first to raise the alarm about the potential problem. A BBC report in early October quotes that he was “far more worried than others”.

Since then, Dimon has reiterated his concerns, which include elevated asset prices and uncertainties surrounding US tariffs and inflation.

Soon after, BoE governor Andrew Bailey gave a euphemistic warning, saying that there was a risk of “disorderly adjustment” if asset prices fall from recent highs.

On 18 October, CNN repeated news from the Financial Times that at least 10 AI startups had gained almost $1 trillion in market value over the past 12 months – none of which had made a single dollar in profit.

In simple terms, this indicates a concerning level of hype.

And yet, the AI sector appears unfazed as valuations continue to rise.

How does the AI “bubble” compare with the dot-com crash in 2000?

There are a few key differences worth understanding.

The dot-com bubble was driven by hype rather than value

The dot-com bubble happened following outsized hype for internet startups, many of which burned through cash, failing to return any profit.

Today’s AI boom is being led by tech giants who have been generating significant profits for years – think Apple, Alphabet (Google), and Microsoft. Even while pouring billions of dollars into AI development, these well-established firms are continuing to generate enormous profits through their usual profitable operations.

In 1999, investors relied on spurious metrics

The dot-com bubble was created by investors putting too much weight on unproven metrics.

Rather than focusing on traditional metrics to value a company, many investors only considered how many “eyeballs” a startup attracted. While the slightly more tangible measurement of “clicks” was also considered, neither metric guaranteed profitable success.

Today’s AI valuations are high, but also slightly more grounded

When the dot-com bubble burst in 2000, reports show that the Nasdaq fell by 80% and the S&P 500 was almost halved, wiping out trillions in market value.

The S&P 500 is a benchmark index that many investors use to measure the broader stock market. The index now includes nine stocks with a market cap over $1 trillion.

September 2025 saw the S&P 500 rise by more than seen in any previous September in the last 15 years.

Although shares dropped in mid-October – when the S&P lost more than 200 points – stock market panic was short-lived.

At the time of writing, on 28 October 2025, the S&P 500 had reached 6,875.16, showing overall return of 18.37% over the last 12 months.

How can I shield my portfolio from a potential market correction?

Though AI’s promise may be real, the winners of the new tech race still can’t be guaranteed. As such, we’d recommend you proceed with caution and ensure that your investment portfolio is diversified to protect your wealth.

While we wouldn’t advise you to avoid investing in the largest global tech companies, spreading your investment portfolio across a variety of sectors and geographies could help reduce the impact of volatility.

We can help you create a well-balanced, diversified portfolio, based on your risk tolerance, time horizons, and long-term goals.

By tailoring an investment strategy that incorporates diversification, we can help ensure your portfolio is equipped to weather market fluctuations – like the possible AI bubble bursting – while capitalising on opportunities for growth.

A diversified portfolio could help you to stay on track to achieve your financial goals with confidence, stability, and peace of mind.

Get in touch

Whatever happens with AI next, we’re here to help you grow your wealth and navigate stock market volatility.

Email info@depledgeswm.com or call 0161 8080200.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.