AI Boom in Financial Markets: Bubble or Trailblazing Technology?

How investors should position their portfolio now

Investments in AI infrastructure represent one of the largest waves of capital investment in recent history – with no end in sight. This development is driven by the enormous demand for high-performance computing capacity, specialized chips, large data centers, fast networks, and massive volumes of data. Numerous leading technology companies are making multi-billion dollar commitments to build AI-optimized facilities, while governments are also pushing for the widespread expansion of digital infrastructure. These are not merely incremental modernizations, but often involve the construction of entirely new data centers, energy and cooling infrastructure, and specialized hardware. In the United States, investment volumes flowing into data centers are now nearly as high as those for traditional office real estate – a clear indication of the historic scale of this development.

Not only hardware and semiconductor manufacturers as well as energy providers and data center operators are benefiting from this new industrial revolution, but also players who enable digital scaling – that is, cloud and infrastructure providers as well as software and application platforms. While Nvidia in particular has become the symbol of this boom since the debut of ChatGPT in November 2022, experiencing an unprecedented surge, many other companies across the entire AI value chain have strategically positioned themselves, providing investors with substantial share price gains.

Race for energy supply and computing power

The global race for energy and computing power has reached a whole new dimension. This year alone, OpenAI has secured commitments of around 30 GW of energy and power infrastructure for data centers – as part of infrastructure and energy contracts estimated at USD 1.5 trillion. The company, valued at around USD 500 billion and considered the world’s most valuable start-up, aims to maintain its technological leadership in the AI race by significantly expanding its physical infrastructure. According to indications, OpenAI wants to secure access to a total of 250 gigawatts by 2033. Whether this figure is precise remains to be seen – but it highlights the strategic direction: OpenAI is striving to have access to more energy than most countries.

OpenAI is a central player in the current AI boom, but by no means the only one. Other technology companies and numerous governments are also securing long-term capacities and advancing their own infrastructure projects. As a result, the current wave of investments is likely not the end, but rather the beginning of a multi-year expansion that is expected to further accelerate the sector’s momentum.

Bubble or not?

Given the sharp price increases of many companies, the question arises whether stock valuations are still supported by fundamental data or whether there are already signs of speculative excess. A comparison with the Dotcom era is obvious, as there are parallels regarding strong price gains and a high concentration of market returns in a few stocks. However, there are important differences today that argue against a simple equation with 1999.

First: Profitability and earnings maturity. Many of today's market leaders, such as the key drivers of technological innovation – the so-called Magnificent 7 (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) – generate substantial profits and demonstrate clear earnings growth. This distinguishes them from the numerous dot-com companies that went public at the time without meaningful profits. While this does not eliminate the hype, it does reduce the risk that developments are purely irrational. Second: Valuation metrics in historical comparison. Looking at typical valuation metrics such as price-to-earnings ratios (P/E ratios), leading technology firms during the peak of the dot-com bubble (e.g., Microsoft, Cisco, Lucent, Nortel, AOL) had very high forward P/Es of over 80. By comparison, the average P/E ratios of today’s dominant companies are significantly lower (around 25–35x, depending on the data source and timing). This suggests that the current market situation is not entirely analogous to that of the year 2000.

Most portfolios are overweight AI – but don't know it

Nevertheless, investors should not underestimate the risks of the AI boom. In 2000, investment cutbacks, overcapacity, and disappointing profits led to a loss of confidence in the "New Economy." In the case of AI stocks, there is also a short-term risk of overinvestment and misallocation. Political and economic uncertainties add to these risks. Therefore, broad diversification remains crucial to cushion potential setbacks.

However, it is evident that even seemingly well-diversified portfolios are now unintentionally highly exposed to AI. The rapid price increases of major technology and chip companies have led to many indices—and consequently passive investment vehicles – having concentrated allocations in this segment. For investors, this can present a cluster risk that undermines the diversification of their portfolios.

Anyone investing in conventional, market-cap-weighted standard strategies is today more dependent on the AI boom than it might initially appear. The tremendous market concentration makes regular portfolio analysis more important than ever—not out of skepticism toward AI, but for reasons of diversification and balance. For example, anyone investing CHF 1,000 in an apparently diversified portfolio such as the MSCI ACWI is currently allocating around CHF 650 to the US, and of that, more than CHF 200 to the "Magnificent 7."

AI is more than just Nvidia – and value appreciation is more than just AI

At smzh, we observe that many portfolios have unintentionally increased their risk profile due to the AI boom in recent months. Especially for long-term investors, it is now crucial to seize technological opportunities in a targeted yet controlled manner.

Anyone investing should understand how much their own portfolio is actually driven by the AI and tech boom. A professional portfolio review can reveal where concentration risks exist and how to achieve a balanced, future-oriented opportunity profile.

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