Evercore ISI believes the ongoing surge in artificial intelligence-linked equities may only be at the beginning, even as warnings of a bubble become more frequent.
“Discussion of ‘Bubbles’ has officially entered the market dialogue,” the firm noted in a recent strategy report.
A quick survey of its clients revealed that 67% think a bubble is already forming. Still, Evercore ISI, led by strategist Julian Emanuel, sees only a 25% probability that the S&P 500 will surpass its 2026 forecast of 7,750 and climb as high as 9,000 before the end of that year.
Emanuel emphasized, however, that “a Bubble has a long way to go.” He compared today’s environment to former Fed Chair Alan Greenspan’s “irrational exuberance” remark in 1996 — a period that preceded a 500% rally in the Nasdaq before the dot-com bubble burst.
With corporate adoption of AI still around 25%, the firm said the current moment appears “more analogous to the early Internet in 1996.”
Sentiment also remains restrained compared with past speculative frenzies. As the report put it: “Not only would we expect to see a Bullish surge, but the mountain of cash [would] be deployed and margin used extensively.”
So far, the run-up in leading AI stocks hasn’t matched the dramatic multiples seen during the dot-com era, when names like Cisco (NASDAQ:CSCO) skyrocketed.
That doesn’t mean the path forward will be smooth, Evercore cautioned. “Further to run” does not preclude sharp swings, noting that the Nasdaq endured “numerous 10%+ pullbacks” during the 1990s boom. The firm expects volatility to remain a feature through October.
As a strategy, Evercore ISI recommended that investors stick with the so-called “Mag 7” companies powering AI adoption, while considering options to capture “limited risk/theoretically unlimited reward participation.”
This content is for informational purposes only and does not constitute financial, investment, or other professional advice. It should not be considered a recommendation to buy or sell any securities or financial instruments. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.