Market Mania: Smead Warns of AI Stock Bubble Bursting

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September 30, 2025

A prominent fund manager is issuing cautionary signals regarding the current surge in Artificial Intelligence (AI) stocks, suggesting the market is exhibiting characteristics reminiscent of a speculative bubble. Bill Smead, Founder and Chief investment Officer of Smead Capital Management, articulated concerns about the rapid and substantial increases in valuations of companies like Nvidia and Palantir, comparing the present situation to the height of the dot-com boom just before its dramatic collapse.

Surging valuations Fuel concerns

Nvidia, a leading manufacturer of AI chips, has experienced a remarkable twelve-fold increase in its stock price since the beginning of 2023, propelling its market capitalization to an unprecedented $4.4 trillion.Simultaneously, Palantir, specializing in AI-powered data analysis, has seen its shares soar twenty-eight-fold, resulting in a valuation of approximately $420 billion. These astronomical gains have prompted questions about whether current stock prices are justified by underlying fundamentals.

The CoreWeave Case Study

Smead pointed to CoreWeave, an AI cloud-computing firm, as a prime illustration of the current market exuberance. Despite generating $1.2 billion in revenue last quarter and possessing a $30 billion revenue backlog linked to an expanded partnership with OpenAI, CoreWeave’s market valuation has reached $60 billion. This disparity between revenue and market capitalization is raising eyebrows among seasoned investors.

Echoes of the Past: Late 1999 Revisited

The current market dynamic is strikingly similar to the conditions that prevailed in late 1999, just prior to the bursting of the dot-com bubble, according to Smead. He argues that the existing situation mirrors past market manias, observing a pattern of escalating speculation and overcapitalization. He believes that current AI company success has already been heavily factored into stock prices, leading to a perhaps unsustainable situation.

Recent market activity underscores this volatility. oracle’s stock jumped 40% in a single day following a positive revenue forecast driven by demand from AI companies like openai. Though, Smead cautions that such rapid gains can be just as quickly reversed, potentially leading to significant losses for investors.

A Cautionary Note on Interconnectedness

smead also expressed apprehension regarding the increasingly close relationships between major players in the AI industry. Nvidia’s recent commitment to invest up to $100 billion in OpenAI, to support the expansion of AI data centers reliant on Nvidia’s chips, exemplifies this interconnectedness, and raises concerns about potential risks.

Company	Stock Price Increase (As Early 2023)	Current Market Capitalization
Nvidia	12-Fold	$4.4 Trillion
Palantir	28-Fold	$420 Billion
CoreWeave	N/A	$60 Billion (Valuation)

Did You Know? The Nasdaq Composite Index, a key indicator of the tech sector, experienced a 78% decline between March 2000 and October 2002 during the dot-com bubble burst.

Pro Tip: Diversifying your investment portfolio across various sectors can help mitigate risk during periods of market volatility.

While acknowledging the potential of AI technology,Smead’s primary concern isn’t the technology itself,but rather the inflated valuations. He believes that a market correction is increasingly likely, and warns that when it occurs, investors may only be willing to purchase AI stocks at significantly lower prices.

Smead’s fund is currently positioned defensively, favoring investments in sectors such as energy, homebuilding, healthcare, retail, and real estate investment trusts (REITs). He suggests a focus on “meritorious companies in out-of-favor sectors.”

Understanding Market Bubbles

Market bubbles are characterized by a rapid escalation of asset prices,driven by speculative exuberance rather than underlying fundamentals. These bubbles inevitably burst, resulting in substantial losses for investors. Identifying the signs of a bubble – such as extreme valuations, excessive media hype, and a disconnect between price and intrinsic value – is crucial for informed investment decisions. The cyclical nature of market bubbles highlights the importance of long-term investment strategies and risk management.

Frequently Asked Questions About AI Stock Valuations

• What is an AI stock bubble? An AI stock bubble refers to a period of excessively inflated stock prices in companies related to Artificial Intelligence, detached from their actual financial performance.
• is the current AI market a bubble? Some analysts, like Bill Smead, believe the current AI market exhibits characteristics of a bubble due to rapidly increasing valuations.
• What happened during the dot-com bubble? The dot-com bubble saw massive investment in internet-based companies in the late 1990s, followed by a dramatic crash in 2000.
• How can investors protect themselves from a potential AI stock crash? Diversifying investments and focusing on companies with strong financial fundamentals are crucial strategies.
• What is Nvidia’s role in the current AI boom? Nvidia is a leading manufacturer of AI chips, and its stock has benefited significantly from the increasing demand for AI technology.

What are your thoughts on the current AI stock market? Do you believe a correction is imminent?

Share your perspective and join the conversation in the comments below!