Here’s what’s on our plate today:

• 🧠 Is AI booming or bursting? We explore the bubble vs. boom debate.

• 🧪 Brain Snack: What VCs actually look for in early-stage startups.

• 🌒 Microsoft quietly improves dark mode across Windows 11.

• 🗳️ Poll: Do you think we’re in an AI bubble?

Let’s dive in. No floaties needed…

The Laboratory

Making Sense of the AI Boom vs. Bubble Debate

Since the 1970s, Warren Buffett has been a staunch advocate of value investing, a philosophy pioneered by his mentor, Benjamin Graham. In his 1994 Berkshire Hathaway shareholder letter, Buffett quoted Graham: “In the short run, the market is a voting machine… in the long run, the market is a weighing machine.”

The insight from Graham has shaped investor philosophies for generations, and it might provide the key to understanding the sky-high valuation of companies powering the AI boom.

On one hand, the stock prices of tech companies are reaching new heights. According to a report from The New Yorker, the earnings power of the so-called Magnificent Seven companies: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla, is behind strong investor sentiment pushing prices of tech stocks through the roof. Between the first quarters of 2022 and 2025, Nvidia’s revenue grew fivefold, while its after-tax profits rose more than tenfold.

This indicates that investors are voting for tech companies to continue increasing profits, and this sentiment is reflected in the preferences of both institutional and retail investors. However, high valuation of tech stocks has also raised concerns that this sentiment might not sustain in the long run, and that current investments are based on hype, speculation, fear, and herd behavior.

In the long run, Graham’s philosophy suggests fundamentals, earnings, cash flows, and competitive strength will determine the true value of a company and dictate its market valuation. Perhaps that is why, in a recent interview with The Verge, OpenAI CEO Sam Altman, when asked directly if investor enthusiasm is overcooked, answered “yes”. He further likened the current stock market boom to the late-’90s dot-com era when the value of internet startups soared before crashing down in 2000.

So, is the current boom in the stock market, driven by AI companies, a bubble? And if so, what do the fundamentals of investing predict the future of tech stocks looks like?

When investors overestimated the impact of tech

In the late 1990s, internet adoption was witnessing a significant uptick. As the number of internet users soared, investors looked for ways to cash in on it. Around that time, any company with a “.com” in its name or business pitch was wildly popular, and stock prices soared. However, this often happened without the companies showing profits, sustainable revenue models, or even viable products. Companies like Pets.com or Webvan attracted millions in funding simply because of the belief that the internet would change everything.

By 2000-2001, the market began to correct itself, and companies were judged by their actual cash flows and business fundamentals. This led to unsustainable business models and weak fundamentals collapsing almost overnight. It is estimated that losses amounted to $5 trillion in market value.

However, while many startups were going bankrupt, companies that had solid fundamentals, like Amazon, which saw its stock price decline by 90%, recovered because they could generate real long-term value. This highlighted that while the internet had the power to transform business, companies still needed sound economics, governance, and timing.

The patterns seen during the dot-com bubble were also witnessed when technologies like crypto and blockchain first emerged. When NFTs first emerged, companies like OpenSea hit massive heights, with monthly trading volumes exceeding $6 billion. However, by 2023, the NFT market collapsed, and volume for OpenSea plunged below $430 million, which had a cascading effect on its valuation. OpenSea’s valuation collapsed from $13.3B to about $1.4B.

The lesson is simple: in the short term, markets can be irrational in their valuation of companies using emerging technologies; however, in the long run, companies need sustainable business models that continue to generate value for customers and investors.

The AI bubble debate

Altman’s warning that investor enthusiasm is ‘overcooked’ sits at the center of a larger debate. Some see clear signs of speculation and a potential bubble, while others argue that strong fundamentals justify current valuations.

According to a Cowles Foundation (Yale) paper, when bubble-detection tests are applied, the findings reveal the presence of speculative bubbles in the Nasdaq stock market and across all Magnificent Seven stocks. The study says that speculative bubbles persist in the market in six of the seven stocks (excluding Apple) from December 2022 to January 2025.

The Washington Post also carried an op-ed that argued that the market may be in a speculative state because productivity gains haven’t shown up yet, even if the long-run case is strong. Other publications have echoed similar misgivings about the current market valuations of tech companies, calling a 2025 unwind a possibility if earnings and adoption lag the story.

On the other hand, Goldman Sachs Research, in a blog post from 2024, argues that AI leaders’ profits and cash flow support elevated valuations despite concentration risks. The report argues that strong business fundamentals and real revenue growth are behind the sky-high valuations. And that the tech sector’s earnings per share jumped to about 400%, compared to just 25% for other sectors over the past decade.

This is indicative of strong fundamentals. The report further argues that since valuations today are not as extreme as those of the dot-com era, today’s AI boom isn’t just reckless hype.

Hedge funds, it would seem, have sided with Goldman in this debate. According to a Reuters report, Wall Street's largest hedge funds, Bridgewater Associates, Tiger Global Management, and Discovery Capital, increased their exposure to Big Tech in the second quarter of 2025.

At the same time, they cut their exposure to industries like aerospace and defense, and consumer and retail. This, the report says, marked a shift from earlier in the year when investor concerns around rising inflation and fears of a bubble in AI triggered a sell-off in "Magnificent Seven" stocks. A clear indication that hedge funds do not see the current tech stock valuations as mere hype.

However, even when Goldman argued against there being a bubble in AI valuations, it cautioned investors because only a few are leading the charge, and missteps could shake market confidence, leading to a crash. Simply put, while the stock valuations of major tech companies spearheading the AI boom may be justified, not every company with AI in its business model and product may be appropriately valued by the market.

It's all about getting the fundamentals right

The debate on whether the sky-high valuations of tech companies constitute a bubble or not will be decided in the long run. However, if one were to look at the dot-com bubble and the current conditions, while there are similarities, there are also differences.

Unlike many dot-com startups that operated without a revenue model, today’s AI boom is backed, at least partially, by profitable tech giants like Microsoft, Amazon, Google, and Nvidia. Additionally, the capital expenditure on AI infrastructure now outpaces internet infrastructure spending during the 2000s and is serving as a de facto economic stimulus.

AI is being implemented into enterprise, healthcare, logistics, and more, which makes it much more likely to sustain future growth compared to consumer-facing websites that dominated the dot-com bubble.

The AI boom may echo the dot-com bubble in enthusiasm, concentration, and risk, but it differs in crucial fundamentals such as profitability, infrastructure investment, and wider adoption

However, it is at times like these that the words of Graham should be repeated as often as possible, and both investors and regulators should look for strong fundamentals in business models rather than chase the hype surrounding AI. In the end, only vigilance can help investors avoid a much bigger financial fallout than those of the past.

Wednesday Poll

Brain Snack (for Builders)

Quick Bits, No Fluff

• Grammarly Gets a Glow-Up: The writing assistant now includes AI rewrites, tone shifts, and a sleeker design. It’s giving “ChatGPT in a pencil skirt.”

• Nvidia’s Cloud Gets Beefier: GeForce NOW adds RTX 5080 GPUs, sharper visuals, and lower latency. Game streamers, rejoice.

• Windows 11 Turns Down the Lights: Microsoft is finally making dark mode look less like a half-finished science experiment.

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