The current artificial intelligence (AI) frenzy could potentially trigger a market crash more severe than the dot-com bubble burst of 1999, according to a leading economist.
What Happened: Torsten Sløk, Chief Economist at Apollo Global Management, voiced his concerns about the inflated valuation of AI technology in a recent research note, as reported by Fortune.
Sløk noted, “The difference between the IT bubble in the 1990s and the AI bubble today is that the top 10 companies in the S&P 500 today are more overvalued than they were in the 1990s."
Heavy investment in AI has resulted in a disconnection between stock prices and earnings for companies such as Nvidia Corp. NVDA, Microsoft Corp. MSFT and Apple Inc. AAPL.
Sløk presented a chart comparing the 12-month forward price-to-earnings (P/E) ratios of the S&P 500's top 10 companies with those of the rest of the index and the overall S&P 500, indicating a bubble potentially even larger than during the dot-com era.
Despite the S&P hitting new records and approaching its all-time high, Sløk contends that the rally is largely driven by gains in the top 10 stocks. He warns that investors are getting caught up in the hype and paying inflated prices as if these companies’ promises are guaranteed, which could ultimately trigger a major market crash.
Sløk cautioned that the 1990s showed us not all promises can — or will — be fulfilled. He also noted that although many of these top companies are profitable, their fundamentals do not justify the multiples.
Why It Matters: Sløk is not the only prominent figure to have raised concerns about the AI bubble. Earlier this year, Alibaba BABA Chairman Joe Tsai warned about a potential bubble in the AI data center construction sector. He cautioned that the rapid expansion of data centers could surpass the early demand for AI services.
In a similar vein, Microsoft CEO Satya Nadella compared the current AI frenzy to the dot-com bubble and pushed for measuring AI’s impact with GDP growth. Billionaire investor Ray Dalio also raised alarms over the soaring valuations of U.S. AI stocks, warning of a potential bubble fueled by high prices and interest rate risks.
Despite these warnings, the AI sector continues to attract significant attention. Tech analyst Dan Ives recently listed his top five picks for the second half of 2025, reiterating that the “golden age of tech” was here with the AI revolution at the forefront.
On a year-to-date basis, First Trust Nasdaq AI and Robotics ETF ROBT, Invesco AI and Next Gen Software ETF IGPT and Global X Robotics and Artificial Intelligence ETF BOTZ surged 9.72%, 9.48% and 2.75%, respectively.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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