If you have paid any attention at all to the financial news recently, you’ll have found it hard to ignore the ongoing speculation about the “AI bubble” bursting.
Forbes suggests that the trillions of dollars being spent by AI companies on data centres is a sure sign of a bubble, while the Guardian is already looking ahead to what happens after the AI bubble inevitably bursts.
This speculation is understandably raising alarm levels among investors, who increasingly list “AI bubble risk” as a top concern.
Indeed, CNBC confirmed that the outcome is now seen as the top investor risk for the first time.
Furthermore, for Brits living in Australia or Australian expats with cross-border investment strategies, a burst of the AI bubble could have a uniquely complex impact.
Read why some experts believe that AI is a bubble, what happens if it bursts, and how you should manage your investment strategy as a result.
There has been dramatic growth in the value of AI stocks
As a sign of the dramatic rise in AI-related stock values, the Guardian confirmed that 80% of all stock market gains in 2025 were concentrated in just the “Magnificent Seven” US tech companies – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla.
Beyond the big seven, according to CNBC, in mid-2025, there were more than 1,300 AI startups valued at over $100 million, and 498 AI companies with valuations of $1 billion or more.
There‘s growing debate that many AI companies’ valuations far exceed current earnings or revenue, with prices based more on future potential than on present performance.
Many market analysts believe there are clear signs of business overvaluation, driven by hype and expectations of future profits rather than by underlying business fundamentals.
If such hype and the optimistic overvaluation of AI businesses continue, investment confidence may lag at some stage, and the bubble could burst.
The dotcom bubble is a clear warning from history
One reason for the pessimism of many analysts and economists is how the previous “dotcom bubble” at the end of the 20th century grew and then burst.
Given that overhyped tech stocks drove the bubble, it’s understandable that investment commentators see the same features in the current rise in AI business valuations.
Looking back at the effects of that bubble bursting, it’s easy to see why experts are spooked by the potential of something similar happening again.
Driven by promised profitability rather than earnings, investors overlooked traditional financial fundamentals.
According to Investopedia, the Nasdaq index rose from 1,000 in 1995 to more than 5,000 by 2000, an increase of over 500%.
It then lost 76% of its value between March 2000 and October 2002, and it took 15 years to reach its previous high.
However, the growth in AI may not be the same as the rise of dotcom businesses
Before you start panicking at that comparison and divest all your tech stocks, it’s important to remember that there are some significant differences between the dotcom bubble and the current growth in AI.
AI is a proven technology, with the reported ability to revolutionise how we live and work. Whether you see that as a good thing or not, it’s hard to deny the potential.
In contrast, the majority of dotcoms were internet startups, driven by ideas around new ways to exploit the internet rather than deep-seated technological value.
Furthermore, the current AI boom is being powered by well-known tech giants such as Apple and Amazon, which have an enviable track record of long-term financial growth across a whole range of technological advances, rather than just one.
Don’t forget that, while many dotcom companies with inferior business models collapsed, stronger companies, such as Microsoft, survived and subsequently thrived.
Additionally, underlying AI technology is proving highly adaptable and making a big difference across a range of industries rather than in a single sector.
The overvaluation of some AI-related stocks may drive a market correction. You may also see heavy consolidation and takeover activity among the 1,300 start-ups you read about earlier. But it’s very possible we won’t see the sort of tech-sector crash we saw at the start of this century.
Indeed, CommBank suggest that the AI surge could be a “durable economic shift” rather than a speculative bubble.
You can help mitigate the impact of a market correction with a diversified portfolio
Clearly, speculation about the potential of an AI bubble can easily cause concern and lead you to question your own cross-border investment strategy.
The best way to mitigate the effects of a bursting bubble is to ensure you are not overexposed to tech stocks, particularly in the US.
Bear in mind that the ASX is dominated more by banks and mining companies than by tech companies, which could help dampen the impact of a burst AI bubble on the Australian market.
As you have read, AI is likely to have a positive impact across many sectors, and businesses are starting to realise its potential to drive growth.
As a result, it makes sense to ensure your investment portfolio is well-diversified across sectors and regions to reduce volatility and protect your long-term wealth.
This should help you to stay on track to achieve your financial goals.
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If you would like to discuss your own investment plans, please get in touch with us today.
Please note
The value of your investment can go down as well as up, and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
This article is for information only; it does not take into account your personal objectives, financial situation, or needs.
Please do not solely rely on anything you have read in this article, and ensure that you conduct your own research to ensure any actions you may take are suitable for your circumstances.
All contents are based on our understanding of HMRC and ATO legislation, which is subject to change.