AI: Solid Boom or Forming Bubble?
AI is causing a stir in the markets, yet the macroeconomy remains surprisingly calm. Unlike the late 1990s, the signals of excess are not present. According to UBS Wealth Management, it would be premature to talk about a bubble: balance sheets are solid, savings are holding steady, and AI-related investments have not yet tipped into excessiveness. One question remains: how long can this stability last?
A Market Driven by AI
Claudia Panseri, CIO at UBS Wealth Management France, makes it clear from the start: the global macroeconomic environment doesn't exhibit any of the typical characteristics that usually precede a bubble. Drawing a parallel with the 1995-2000 period is enticing yet fragile. Back then, the rise of the Internet was accompanied by an explosive mix: soaring corporate debt, swelling external deficits, skyrocketing margins before their collapse, and most notably, non-residential investment that added a full percentage point to GDP in just two years. Nothing of the sort is happening today.
While the S&P 500 certainly shows high valuation multiples, they are driven by companies that finance their investment expenditures through cash, seldom through debt. Profit margins, around 13%, remain near the peaks of the last thirty years. Affluent households—the true stockholders—have not begun any phase of massive dissaving. As for the US current account balance, it is not deteriorating at the pace observed during the Internet bubble.
Even regarding investment spending, the proclaimed euphoria has not yet occurred. Since the launch of ChatGPT, the share of non-residential investments in US growth has barely shifted, far from the boom of the late 1990s. In other words, AI is appealing but has not yet overshadowed the rest of the economy.
The Real Signs of a Bubble
UBS identifies several advanced indicators that can signal a transition from a simple boom to a speculative bubble. None of these have been triggered so far. There is no prolonged acceleration in tech capital expenditure, no sharp decline in savings among the wealthiest households, and no shift of corporate balance sheets into the red. The Federal Reserve is also not pursuing a policy comparable to that of the late 1990s, when rate cuts and robust growth fueled exuberance.
The market psychology remains more challenging to grasp. The rally in AI stocks is strong and can continue, even if disconnected from fundamentals. Therefore, UBS advises caution without resorting to preemptive pessimism. For investors who are skeptical yet eager to join the trend, two strategies stand out: using structured products to capture upside potential while limiting losses, and maintaining a diversified portfolio to avoid excessive exposure to a few tech giants.
The key challenge in the coming quarters will be to see whether AI investment truly gains momentum, if it diverts productive resources from other sectors, and if balance sheets start to feel the strain. For now, the economy remains surprisingly balanced, making this phase of euphoria healthier than the dotcom era. Yet, the question remains: can the boom continue without ever faltering?
This content has been automatically translated using artificial intelligence. While we strive for accuracy, some nuances may differ from the original French version.
