Asger Risom
An economist warns the AI stock bubble may have already burst, but a rarer and potentially more dangerous bubble could now be forming in the earnings driving the sector’s rapid growth.
Warnings about an artificial intelligence stock bubble dominated markets in 2025. Now, one economist says that phase may already be over.
The bigger concern, he argues, is a less typical kind of bubble forming beneath the surface.
According to Fortune, John Higgins, chief markets economist at Capital Economics, believes valuations in the tech sector have already cooled. He said traditional signs of a bubble, such as overstretched price-to-earnings ratios, have begun to reverse.
“If you’re judging whether a bubble exists or not in relation to how stretched or otherwise its valuation is, then there’s an argument that the bubble has burst,” Higgins told Fortune.
Data cited in his recent note shows price-to-earnings ratios for Big Tech peaked in late 2024 before declining to levels not seen since the pandemic. While elevated, they remain far below the extremes of the early 2000s dotcom era.
Valuations Cool
Despite the correction, AI-related companies had seen rapid growth. Fortune reported that by late 2025 there were nearly 500 AI unicorns valued at a combined $2.7 trillion, according to CB Insights.
At the same time, more than 1,300 startups surpassed $100 million valuations. OpenAI alone reached $730 billion, up sharply within months, its CFO Sarah Friar said.
Yet parts of the tech sector have pulled back. A selloff in software stocks, dubbed the “SaaSpocalypse,” reflected investor concerns that AI could replace traditional business models.
“Investors had sort of honed in on that software services industry group as being one of those sectors that was relatively vulnerable to that rollout of AI,” Higgins said.
Pressure Points
Higgins also pointed to weakness in semiconductors, where supply chain disruptions and geopolitical tensions have slowed momentum.
Fortune noted that tariffs and the war in Iran have contributed to constraints, including disruptions to helium supply, a key component in chip manufacturing.
Meanwhile, major tech firms continue to post strong earnings. Bloomberg Intelligence estimates growth of about 18% for the “Magnificent Seven,” compared with 11% for the rest of the S&P 500.
A Rare Bubble
Higgins warned the next risk may lie not in inflated stock prices, but in the earnings themselves.
“There may be one [bubble] actually in the fundamental side of things, which is quite rare,” Higgins said.
He suggested profits could prove unsustainable if demand for AI slows or broader economic conditions deteriorate.
Goldman Sachs estimates AI capital spending could reach $539 billion in 2026, raising concerns about overinvestment. Adoption may also face limits, with some workers hesitant due to job displacement fears, according to McKinsey data cited by Fortune.
“If the economy, more generally, were to weaken, that could also weigh on the stock market and weigh on the earnings of companies who are making money from the rollout of AI,” Higgins said.
Sources: Fortune, Bloomberg Intelligence, CB Insights, McKinsey
