AI and Market Bubbles: Separating Hype from Reality
- Holzberg Wealth Management
- 6 hours ago
- 7 min read
HWM Market Recap - November 2025
|
Artificial intelligence has dominated financial headlines, fueled record levels of corporate spending, and helped push markets to new highs. With so much money pouring into the sector – from massive data center construction to astonishing equipment purchases – it is understandable that investors feel a familiar mix of excitement and anxiety. It is natural to wonder whether we are witnessing the early stages of a transformative technological revolution, an investment bubble, or some combination of both.
While no one can know for sure, history offers a helpful perspective. Periods of intense innovation often feel like bubbles in real time because enthusiasm tends to outpace the speed at which real-world results materialize. The railroad boom of the 1800s, the electrification of the early 1900s, the “tronics” wave of the mid-20th century, and the rise of cloud computing and the internet revolution of the 1990s all followed a familiar pattern: initial excitement, massive investment, volatile markets, and ultimately a technology that reshaped the world.
The dot-com era is a perfect example. Investors dramatically overestimated how quickly the internet would become profitable, but they did not misjudge the internet’s long-term value. Companies like Amazon lost more than 95% of their market value during the early 2000s crash, yet went on to become some of the most influential businesses in history. Meanwhile, telecommunications companies laid more than 80 million miles of fiber-optic cable – far more than was needed at the time. After that crash, roughly 90% of those cables sat unused. That ‘overbuilding’ formed the backbone of the modern internet, and what was once looked at as wasteful is now recognized as essential infrastructure. That same dynamic may play out with AI: the capabilities are already remarkable and the hopes for productivity gains are high, but the economic benefits will likely take time to materialize.
At the same time, there are meaningful differences between today and the 1990s. Back then, companies with no revenue were valued in the billions. Today, many of the firms leading the AI boom – including the so-called “Magnificent 7” (Microsoft, Alphabet, Meta, Nvidia, Apple, Amazon, and Tesla) – are profitable, mature businesses with strong balance sheets. That does not guarantee their stock prices will continue rising without interruption, but it does mean this environment is very different from the dot-com era. Still, the scale of AI investment is enormous, and some of the relationships within the ecosystem are unusual. When a chipmaker like Nvidia invests billions into an AI company like OpenAI, and that AI company then uses those funds to buy the chipmaker’s products, it is reasonable to ask whether the enthusiasm is sustainable. These dynamics do not necessarily signal a bubble; they reflect that significant technological transitions often involve a mix of rational optimism and speculative excess.
It is also important to remember that calling something a “bubble” does not mean it is about to burst. And even when a bubble does exist, it can persist far longer than anyone expects. Investors were calling tech stocks “overvalued” as early as 2018; many of those same companies have delivered extraordinary returns since then. This is why market timing is such a dangerous strategy. Even experts struggle to get it right. Former Federal Reserve Chairman Alan Greenspan warned of “irrational exuberance” in 1996, yet the market did not peak until 2000, after more than tripling in value. Anyone who sold in response to that warning missed one of the strongest rallies in history. Successful market timing requires being right twice: knowing when to get out and when to get back in. Most investors are better served by the far more reliable approach of maintaining a well-diversified, long-term portfolio.
It is equally important to acknowledge that innovation rarely delivers instant economic payoff. Even if AI ultimately transforms productivity – which is very possible – it will not happen overnight. Businesses need time to adapt, reorganize, and learn how to integrate these tools effectively. Every major technological shift has taken years, sometimes decades, to produce its full economic benefits. When markets get ahead of that timeline, volatility can follow. That does not undermine the long-term story; it simply reflects that progress and profits do not always move in parallel.
For all of these reasons, “Is AI a bubble?” is not the most useful question. A better one is: “How should my financial plan be positioned to benefit from innovation without being vulnerable to its ups and downs?” The answer lies in maintaining a balanced, diversified portfolio – one that allows you to participate in technological growth without relying on any single theme or sector to carry your financial future. Most investors already have meaningful exposure to AI simply by owning broad market funds, since AI-related companies make up a large portion of major indexes. You do not need to buy individual AI stocks to benefit. In fact, doing so often introduces unnecessary concentration risk and makes portfolios more fragile during inevitable periods of volatility.
As your advisors, our role is to ensure your portfolio is positioned to benefit from innovation over the long term while also meeting your broader financial needs – e.g., generating income, managing risk, and supporting your goals. That means diversifying across sectors, company sizes, and asset classes. While technology may continue to perform well, excessive exposure to a single area can create vulnerabilities. Even great companies and transformative technologies experience periods of significant underperformance. Your portfolio is designed to participate in opportunities while also holding exposures that provide stability and resilience. This approach will not capture every penny of upside during strong rallies, but it is intended to navigate changing market conditions and keep you on track.
AI may become one of the defining technologies of our lifetime, but no innovation, no matter how transformative, moves in a straight line. There will be breakthroughs, disappointments, surprises, and volatility. These swings are not something to fear; they are simply part of how progress unfolds. What matters most is having a thoughtful plan, staying diversified, and keeping your focus on the long-term horizon rather than the short-term headlines. If you would like to review how your current portfolio is positioned, understand how much AI exposure you already have, or discuss how these trends fit into your long-term goals, we are always here to help.
|
Monthly Changes in Indices
| Year-to-Date Changes in Indices
|
Monthly Performance By Sector
| Year-to-Date Sector Performance
|
|
Interest Rates: The Federal Open Market Committee (FOMC) announced that it cut interest rates by 0.25% in its October meeting, marking the second interest rate decrease of the year.
Inflation: The Consumer Price Index (CPI) increased 0.3% month-over-month in September, after rising 0.4% in August. Over the last twelve months, CPI increased 3.0%. Core CPI (which excludes food and energy) increased 0.2% in September compared to August and rose 3.0% compared to a year ago.
Housing: According to the National Association of Realtors, existing home sales increased 1.5% month-over-month in September and increased 4.1% from one year ago. The median existing-home sales price rose 2.1% from September 2024 to $415,200. There has been no new data about new single-family home sales since the Census Bureau released the numbers for August.
Mortgage Rates: As of November 13th, 2025, the weekly average for a 30-year fixed-rate mortgage is 6.24%, slightly below the 52-week average of 6.67% and down 0.54% from a year ago.
Employment: The Bureau of Labor Statistics has not released any new unemployment data since September.
Consumer Sentiment: The University of Michigan's Surveys of Consumers fell back 6.2% in November. Compared to its reading from one year prior, consumer sentiment is down 29.9%. Year-ahead inflation expectations inched up from 4.6% in October to 4.7% in November. Long-run inflation expectations declined from 3.9% in October to 3.6% in November.
If you liked this post, please share it with someone who might benefit from it, and let us know if you have any comments or questions!
About the Author
Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and nationwide with the financial decision-making process to organize, grow, and protect your assets.
** This writing is for informational purposes only. The author and Holzberg Wealth Management do not guarantee or otherwise promise any results that may be obtained from using this report. No reader should make any investment decision without first consulting their financial advisor and conducting their own research and due diligence. These commentaries, analyses, opinions, and recommendations represent the personal and subjective views of the author and do not constitute a recommendation, offer, or solicitation to make any securities transaction. The information provided in this report is obtained from sources that the author believes to be reliable. External links to third parties are being provided for informational purposes only. Holzberg Wealth Management is not affiliated with the third-party websites linked to, unless otherwise explicitly stated, and does not constitute an endorsement or approval by Holzberg Wealth Management of any of the third party’s products, services, or opinions. Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Any charts and graphs provided are hypothetical and for illustrative purposes only, are not indicative of any investment, and assume reinvestment of income and no transaction costs or taxes.