Back in 1999, Wall Street experienced a frenzy like no other, caught up in the excitement over the internet. Companies without revenue suddenly boasted billion-dollar valuations, and “eyeballs” became a new form of currency. However, this bubble eventually burst, with an estimated five trillion dollars in market value evaporating between March 2000 and October 2002. Today, history seems to be repeating itself, and this time the key term is “AI.”
Torsten Slok, the chief economist at Apollo Global Management, warns that the current AI-driven market bubble may be even more inflated than that of the dot-com era. He has presented data to back his claims, showing remarkable overvaluation in today’s tech landscape.
Slok highlighted, “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.” This serves as a crucial warning for investors and market watchers alike.
The Disturbing Chart Investors Should See
A recent chart from Apollo showcases the 12-month forward price-to-earnings (P/E) ratios of the top ten companies in the S&P 500 compared to the rest of the index. In simple terms, a P/E ratio helps gauge a stock’s valuation relative to its earnings, with a high ratio indicating investors anticipate strong future growth.
What Slok’s chart reveals is startling: by 2025, the P/E ratios of the leading ten companies may exceed those seen at the peak of the dot-com bubble in 2000. This suggests that investors are betting aggressively on AI giants like Nvidia, Microsoft, Apple, and Google, leading their stock prices to drift far from actual earnings.
Torsten Slok: “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” pic.twitter.com/OEervHU4WG
— zerohedge (@zerohedge) July 16, 2025
This super-concentration of value among a few AI-centric stocks signifies a troubling trend, reminiscent of the tech crazes of the 90s, but even more worrisome.
The Risks of a Narrow Market Rally
You may have noticed that the S&P 500 appears to be flourishing this year. However, the reality is that most of this success stems from just those ten companies. The other 490 firms in the index are barely moving. This narrow rally poses a significant risk; if just one of these key players stumbles, it could send ripples throughout the entire market.
Wall Street seems overly optimistic, treating AI advancements like they are already realized achievements. This has resulted in inflated valuations based on expectations rather than tangible gains.
Are We Ignoring History Lessons?
Back in 1999, the internet undeniably changed everything. Still, that didn’t prevent investors from heavily overvaluing companies unable to meet their own hype. Today’s excitement around AI mirrors this pattern. Each corporate earnings call now emphasizes an “AI strategy,” akin to how companies in the late 90s added “.com” to their names.
Stocks are soaring based on AI’s potential rather than current earnings. Wall Street is baking in a flawless AI future, conveniently overlooking the risks—regulatory issues, high operating costs, and potentially slower adoption rates. As the data indicates, these heavily valued AI companies are being treated as invulnerable, which is always a troubling sign.
Will AI Outgrow the Internet? That’s Not The Real Question
The debate isn’t whether AI will transform our world; it undoubtedly will. The crucial question is how much investors are prepared to pay today for profits that might be years away, if they ever arrive. Lessons from history tell us that bubbles don’t burst because the technology is flawed; they pop when expectations far exceed reality, particularly when easy money runs dry.
The Potential Future of the Market
If earnings don’t align with these soaring valuations soon, the market might not even require a specific event to deflate. Overvaluation alone could spark the decline. When bubbles burst, they tend to implode spectacularly, erasing trillions in value and shaking investor confidence.
While AI technology will certainly endure, the same might not apply for investors chasing this dream without caution. In 2000, the internet seemed to defy financial gravity; today, the AI hype train is speeding toward a point where it might not be able to maintain its momentum. Torsten Slok’s insights remind us that we’ve encountered this scenario before.
What’s the takeaway? Achieving a realistic understanding of potential investments is crucial as new technologies develop. Exploring these concepts further can empower your investment strategies. For more insights, check out Moyens I/O.