On November 7, 2025, one of my "favorites" among financial bloggers, Charlie Bilello, held a webinar that is really worth watching. Bilello, known for his excellent data-driven analysis, presented a series of charts showing the extraordinary rise of stocks in the Artificial Intelligence (AI) space. The message behind his visualizations was powerful: Are we experiencing a new revolution - or another bubble?
What is a bubble?
Financial history is littered with episodes that seem almost absurd in retrospect: the South Sea bubble of 1720, the railroad boom of the 1840s, Japan's investment excesses of the 1980s, the dotcom euphoria of the late 1990s and the US real estate bubble before the 2008 financial crisis. They all have one thing in common: collective euphoria, fueled by a convincing narrative that made the extraordinary seem rational - until it wasn't.
As Nobel Prize winner Eugene Fama once remarked: "Bubbles are easy to recognize in retrospect, but difficult to predict in real time." This insight highlights a key dilemma: only when the dust has settled can we call a phase a bubble with certainty. At the moment itself, it usually feels like progress.
Robert Shiller, another Nobel Prize winner and expert in market psychology, defines a bubble as "a situation in which news of rising prices sparks investor enthusiasm that spreads through psychological contagion, attracting more investors who in turn drive prices higher."
Are we in a bubble?
We are undoubtedly experiencing a revolution in artificial intelligence. Like the internet in the 1990s, it promises to transform business models, productivity and entire industries. As Bilello's charts show, this enthusiasm has been accompanied by an extraordinary rise in the valuation of these stocks. A handful of AI-related giants - Nvidia, Microsoft, Amazon, Alphabet and Meta - have soared in valuation that they now account for around 36% of the total market capitalization of the S&P 500.
Source: Charlie Bilello webinar "are we in a bubble"
These valuation increases have now also left the 'rationally' justifiable floor. The rest of the market looks modest by comparison. This concentration raises questions. Most stocks have barely increased in valuation - it is the AI stocks that are pulling the indices upwards. But investors seem to be pricing in perfection. When expectations reach this level, any setback can be devastating.
All signs that point to a bubble. However, as the definition of bubbles above correctly points out, these can usually only be recognized in retrospect. So the question of whether we are in a bubble cannot be answered conclusively. But there are many signs that we are.
What (not) to do?
As an investor, it is advisable to focus less on labeling the markets and more on managing your own risks. Anyone investing in AI shares or in indices with a high proportion should increase their risk budget compared to a 'classic equity exposure'. Instead of a 30% correction, it is advisable to calculate with 50% and more.
If you do not want to invest in AI shares, it is better to concentrate on your own convictions and let the euphoria pass you by with confidence. It is advisable, for example, to use alternative indices (with a low AI weighting) as benchmarks for your assessment. The AI boom may burst - or it may not. But discipline outlasts every market phase.
As Charlie Bilello's data shows, markets often dance to the beat of optimism until the music dies down. Whether we are witnessing the peak of a new era or the start of another correction remains to be seen.