The risk of a stock market bubble sparked by artificial intelligence enthusiasm has become “much less likely,” according to analysts at Yardeni Research.
Last year, heavy investment pledges from mega-cap technology firms and a flurry of interconnected deals among AI-focused companies fueled concerns that the market was entering a speculative phase similar to the late-1990s dotcom era.
However, in a recent note, Ed Yardeni and his team said that a “repeat of the 1999/2000 Tech Wreck is clearly much less likely than widely feared” in 2025.
They pointed in particular to valuation trends within the S&P 500 Information Technology sector, home to many AI-linked stocks. The sector’s forward price-to-earnings ratio has retreated to 23.7 from above 30.0 late last year. The forward P/E ratio is commonly used by investors to gauge a stock’s valuation relative to expected earnings.
According to the analysts, the pullback reflects a broader rotation away from the so-called “Magnificent 7” mega-cap tech stocks — which dominated market performance in the years following the pandemic — toward other segments of the U.S. market and international equities.
They added that the probability of either a sweeping market collapse or an explosive rally appears limited at present.
The shift in portfolio allocations, both domestically and globally, has been increasingly influenced by doubts about the durability of earnings growth among the Magnificent 7. “As the hyperscalers among them have made major commitments to dramatically increase spending on AI infrastructure,” the analysts wrote, investors have begun to question how quickly those large capital expenditures will translate into meaningful returns.
Yardeni’s team also noted that investors have been gradually reallocating capital outside the United States after more than a decade of strong outperformance. Since 2010, U.S. equities have significantly outpaced many global markets, with their share of the MSCI world index by market capitalization climbing to a record 65% in 2025.
“So it was time to rebalance into stock markets with lower valuation multiples. This global rebalancing is likely to continue this year,” the Yardeni analysts said.