Market outlook
Analysts at Yardeni Research, among them Ed Yardeni, contend that the prospect of an artificial intelligence-driven stock market bubble is "much less likely" now than it had been perceived. Their assessment centers on valuation adjustments within the U.S. technology sector and a broader rebalancing of global equity allocations.
Key to their view is a reduction in the forward price-to-earnings ratio for the S&P 500 Information Technology sector - a group that includes many companies tied to AI initiatives - which they say has fallen to 23.7 from above 30.0 late last year. A forward P/E is a commonly used metric for gauging how investors are pricing expected future earnings.
Rotation away from concentrated tech leadership
The Yardeni team interprets the decline in the sector's forward P/E as evidence of a rotation out of the so-called "Magnificent 7" technology giants that dominated performance in the aftermath of the pandemic. According to their note, investor flows have shifted into other parts of the U.S. market and into non-U.S. equities, reducing the concentration that prompted comparisons to the late 1990s-era tech bubble.
Despite these moves, the analysts judge that the odds of either a broad-based market collapse or an outsized, rapid rally remain muted. Their language specifically rejects a simple replay of past extremes, writing that a "repeat of the 1999/2000 Tech Wreck is clearly much less likely than widely feared" in 2025.
Drivers of rebalancing
Yardeni highlights large planned capital expenditures by the largest technology firms - described in their note as hyperscalers - to build out AI infrastructure. Those spending commitments have prompted some investors to reconsider whether near-term earnings growth at these companies is sustainable, and to question the timeline for seeing substantive returns from the increased outlays.
Another factor cited by the analysts is the long-running outperformance of the U.S. market. They note that the U.S. share of the global MSCI index rose to a record 65% in 2025, and that this overweighting prompted some investors to rebalance into markets with lower valuation multiples. "So it was time to rebalance into stock markets with lower valuation multiples. This global rebalancing is likely to continue this year," the Yardeni analysts wrote.
Investor implications
For investors, the note frames the current environment as one in which valuation compression within a concentrated tech cohort and an ongoing shift toward other sectors and geographies reduce the immediate likelihood of a bubble repeating historical extremes. However, the analysts also underscore that questions remain about when the substantial AI-related capital spending by large tech firms will translate into material earnings gains.
Additional market commentary and investment product information referenced in the original note highlighted data and analytics tools intended to support investment decisions. Readers are advised that such services aim to provide insights rather than guarantees of performance.