Are We in a Bubble?
Technology stocks have been driving equity markets since early 2023, largely due to optimism around the societal and economic prospects for AI. AI-related investment has become a growing contributor to U.S. GDP growth, as companies across sectors deploy productivity-enhancing technologies — translating into increased spending on hardware, software, and infrastructure. Some have drawn comparisons between today’s AI boom to the early-2000s “dot com” bubble. However, we believe that the tech sector is in a relatively stronger place:
• Valuations are more grounded. The companies driving market performance today generate substantial earnings and cash flow, unlike the speculative names that dominated headlines two decades ago.
• Capex is internally funded. The majority of AI-related capital investment is being financed through corporate cash balances and earnings rather than debt.
• Demand is tangible. AI investment is underpinned by real demand, not merely future promises, as global data center demand is projected to grow 19–22% annually through 2030.
“We like AI for growth and as a defensive hedge. As demand for high-performance computing infrastructure doubles annually* and intelligence models accelerate even faster, we see generative AI as the picks-and-shovels of the next industrial revolution—reshaping industries and justifying optimism even as valuations rise.” -Michael Gates, Head of Model Portfolio Solutions, Americas
While tech sector performance has been strong, it has not nearly reached the levels of stretched valuations seen during the dot-com run-up. At its peak, the S&P 500 Info Tech Index reached a forward P/E of ~55x, compared to ~30x today.
“Chip and data center investment alone is already at half a percent of global GDP. This is the largest investment in human history, and we’re just in the early stages of this foundational level of the AI stack. There’s more to come.” -Tony Kim Head of Fundamental Equities’ Global Technology Team
Did you know? While tech sector performance has been strong, it has not nearly reached the levels of stretched valuations seen during the dot-com run-up. At its peak, the S&P 500 Info Tech Index reached a forward P/E of ~55x, compared to ~30x today. Investor behavior today looks nothing like the late-1990s bubble: U.S. equity mutual funds and ETFs have seen $45B in net outflows year-to-date, compared with $1.2T of inflows over 34 straight quarters leading up to 2000. Technology funds rank only 17th in net flows (+$14B) this year—far from the #2 spot and +$54B seen during the peak of the dot-com era.
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* Source: “US Data Center Market Outlook: The Age of AI”, BloombergNEF, April 2025. Subject to change. There is no guarantee that this or any forecast will come to pass. Source: 1: Bloomberg as of 10/9/25 Investing involves risk, including possible loss of principal. This material is provided for educational purposes only and is not intended to constitute investment advice or an investment recommendation within the meaning of federal, state or local law. You are solely responsible for evaluating and acting upon the education and information contained in this material. BlackRock will not be liable for direct or incidental loss resulting from applying any of the information obtained from these materials or from any other source mentioned. BlackRock does not render any legal, tax or accounting advice and the education and information contained in this material should not be construed as such. Please consult with a qualified professional for these types of advice. Technology companies may be subject to severe competition and product obsolescence. ’12m Price/Earnings’ ratio as defined by Bloomberg’s “Best Estimate P/E Ratio” is calculated by dividing the price of the security by consensus estimate for EPS (the mean of sell-side analyst estimates). Prepared by BlackRock Investments, LLC, member FINRA. © 2025 BlackRock, Inc. or its affiliates. All Rights Reserved. BLACKROCK is a trademark of BlackRock, Inc. or its affiliates. All other trademarks are those of their respective owners
