Is the AI sector currently a bubble?

Possibly, but do not jump to that conclusion too quickly, as I argued in my latest Free Press column.  Excerpt:

Nvidia is often considered a bellwether AI stock. That’s because much of its revenue comes from selling graphics processing units to power advanced AI systems, meaning that its success gives investors insight into the health of the sector overall. Currently, Nvidia’s stock-price-to-earnings ratio is in the 54 to 55 range, roughly twice the typical market average. That means the market expects great things from this stock. Those projections may or may not be validated, but it’s hard to conclude they’re entirely divorced from reality…

Keep in mind that the tech sector as a whole is still earning more than it is shelling out in capital expenditures. The current AI boom is being financed by earnings more than by new issuance of debt, which makes it less prone to a sudden crash. By one estimate, capital expenditures in Big Tech are about 94 percent of cash flow in 2025. You could imagine that number moving into unstable territory, but so far, the U.S. tech sector is managing to pay its bills without going into debt.

You may recall we are coming off a period when everyone complained that the big tech companies were sitting on trillions of dollars in cash and capital. Now, they are spending it, and complaints are heating up once again. Damned if they do, damned if they don’t.

In fact, what we are seeing right now is a shortage in the AI sector’s capacity to meet demand. Major tech companies are investing in more computing capacity, but they still cannot serve all the customers who want access to AI systems. That augurs well for the future of the sector, even if there are dips and spills along the way.

As usual, we will see, but if you are calling it a bubble after an initial price dip or corporate shake-out, that is exactly the fallacy you are not supposed to be slipping into.