·AI isn’t in a bubble—the cash (and the hype) are real, these analysts sayBy Jim EdwardsBy Jim EdwardsExecutive Editor, Global NewsJim EdwardsExecutive Editor, Global NewsJim Edwards is the executive editor for global news at Fortune.
He was previously the editor-in-chief of Insider's news division and the founding editor of Insider UK. His investigative journalism has changed the law in two U.S. federal districts and two states.
The U.S. Supreme Court cited his work on the death penalty in the concurrence to Baze v. Rees, the ruling on whether lethal injection is cruel or unusual.
He also won the Neal award for an investigation of bribes and kickbacks on Madison Avenue.SEE FULL BIO Believe it!Photo by Chelsea Guglielmino/Getty ImagesDespite warnings of an AI bubble, some analysts are arguing that AI demand and growth remain strong, with sector investment driven by real cash flows, not debt.
Current valuations are not as extreme as the dotcom era, and even a correction is unly to trigger a U.S. recession, they say.
The S&P 500 hit a new all-time high Wednesday (up 0.58% on the day), driven as usual by stocks (the Nasdaq Composite rose 1.12%), despite the fact that both the IMF and the Bank of England warned that AI might be a bubble and stocks are due for a sharp correction.
For weeks, all the talk on Wall Street is that the growth of the AI sector must, surely, be unsustainable and that this bubble is due to pop.
The record-high price of gold, alone, suggests that a lot of investors want a hedge against an implosion in U.S. stocks. Yet some analysts are saying that you should believe the hype.
They argue: Corporate demand for AI tools is real and growing. AI build-out is being funded by hard cash from company balance sheets, not risky debt.
Stock valuations are not as extreme as they were in the dotcom crash of 2000. And even if a crash in AI did happen, the fallout wouldn’t tip the U.S. into recession.
The biggest cheerleader for AI is, of course, Dan Ives at Wedbush who recently published a note titled “Expecting a Robust 3Q Earnings Season to Match the AI Hype; Popcorn Moment.” “The cloud stalwarts Microsoft, Alphabet, and Amazon had very robust AI enterprise demand in the quarter based on our field checks.
While some investors continue to question the valuations and pace of this spending trend, we believe to the contrary the Street is still underestimating how big this AI spending trajectory is,” he told clients.
He believes these companies will spend $3 trillion on AI over the next three years.
Importantly, that spending isn’t coming from debt or VC funding, according to Jan Frederik Slijkerman and Timothy Rahill at ING.
They recently published a note examining whether all this AI spending might hurt corporate credit quality and discovered that … everything is totally fine!
“Investments by the largest nology companies [Amazon, Alphabet, Meta, Microsoft, and Oracle] are expected to surpass the US$400bn mark in 2026.
… The investments described above are mind-blowing, given their scale. What is even more striking is that these investments have been funded from operating cash flows,” they wrote.
“From a debtholder perspective, we are less concerned with a potential mismatch between supply and demand, as the large nology platforms mentioned above have funded their expansion plans from their cash flows,” they said.
Still, surely stocks are overvalued? The majority of gains in the S&P 500 this year have been driven by a handful of companies. That concentration risk could hurt investors if there is a pullback.
We aren’t there yet, according to Jeff Buchbinder, chief equity strategist for LPL Financial in Boston.
“The forward price-to-earnings ratio (P/E) of the S&P 500 has yet to reach dotcom era levels, and in fact remains below December 2020 levels because earnings were depressed coming out of the COVID-19 pandemic,” he said in a note today.
“So large caps stocks are expensive, lifted by AI-driven nology stocks, but not quite to the extremes of 25 years ago.” The economics of AI are much more robust than the dotcom era, he says.
“Perhaps the key difference between the broader secular AI growth theme and the dotcom era is that large, AI hyperscalers have mostly funded capital expenditures (capex) with strong internal cash flows, not through AI revenue in singularity or by issuing debt or equity.
In comparison, dotcom era spending was broadly funded through massive amounts of ‘vendor financing,’ which ultimately led to the circular flow of capital that fueled the bubble burst.” And even if there is a correction, it won’t be too bad, argue Samuel Tombs and Or Allen at Pantheon Macroeconomics.
They estimate that AI capex boosted U.S. GDP growth by 0.3% points. Even if it all disappeared it would not be enough to tip the U.S. into recession, they say.
“Weaker growth is more ly than a recession if the AI boom turns to bust,” they said in a note to clients.
“The ly hit from the AI boom turning to bust would be a significant drag on the economy, but bably a smaller shock than the bursting of the dot-com bubble in 2000, and an ensuing recession would be far from a forgone conclusion.” That comes with a caveat: “It would be more alarming, though, if a reversal of AI optimism led to a broader correction in the stock market beyond AI-linked companies, especially if the hit to households’ wealth and confidence tipped the fragile balance in the labor market, leading to a jump in the layoff rate,” they said.
Here’s a snapshot of the ahead of the opening bell in New York this morning: S&P 500 futures were flat this morning. The index closed up 0.58% in its last session.
STOXX Europe 600 was down 0.22% in early trading. The U.K.’s FTSE 100 was down 0.21% in early trading. Japan’s Nikkei 225 was up 1.77%. China’s CSI 300 was up 1.48%. The South Korea KOSPI was up 2.7%.
India’s Nifty 50 was up 0.54% before the end of the session. Bitcoin fell to $121.4K.Fortune Global Forum returns Oct. 26–27, 2025 in Riyadh.
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