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Should stock market investors be worried about an AI bubble?

Temp_user_67fe843122a8d — Sat, 06 Sep 2025 08:05:19 +0000

Recently, there’s been quite a bit of talk about an artificial intelligence-related ‘AI bubble’ in the stock market. A bubble is where the price of an asset, or group of assets, rises rapidly and ends up well above its fundamental value.

Is this an issue that investors should be concerned about? Here’s my take.

Is this another dotcom boom?

The general view of those who’ve said there may be an AI bubble today is that market conditions are currently very similar to those seen in the dotcom boom of the late 1990s. Back then, technology stocks shot up spectacularly – to sky-high valuations – on the back of excitement around the internet, only to come crashing back down in the early 2000s, when investors realised that not many of these companies were going to make any money from the internet.

To my mind however, today’s landscape looks quite different to the late 1990s. For a start, unlike in the late 90s, a lot of the leaders of this tech revolution still have reasonable valuations. Take Google-owner Alphabet for example. It’s currently trading on a forward-looking price-to-earnings (P/E) ratio of 22. That’s a relatively low valuation for a tech company with a diversified business model, huge free cash flow, and a fortress balance sheet.

Sure, some tech stocks have valuations that look a little elevated. Microsoft, for example, is currently trading on a P/E ratio of 33. That’s hardly bubble territory though. Back in the late 1990s, this stock had a P/E ratio in the 70s.

Secondly, AI is being adopted by consumers very quickly. For example, ChatGPT now has 800m weekly active users while Google’s AI Overviews has 2bn monthly users. AI’s also being used by businesses to increase efficiency — Facebook’s using the tech to create a more powerful, targeted advertising platform.

So this is a very different set-up to the dotcom boom. Back then, there were lots of great business ideas related to the internet but few were actually viable.

So in my view, AI’s not a bubble.

Mini bubbles in the market

That said, I do see ‘mini bubbles’ in AI. I believe some stocks have run too fast too soon, and are now detached from their fundamentals.

Palantir’s (NASDAQ: PLTR) one such stock I don’t think’s worth considering. It’s a great company growing at a phenomenal rate thanks to AI (48% revenue growth last quarter). But its valuation doesn’t make sense to me. It trades at around 90 times this year’s projected sales — not earnings!

To my mind, that’s bubble territory. So I think caution’s warranted.

While the company’s growing rapidly today, I don’t think it will grow at this rate forever. And when growth slows, investors will most likely decide it’s not worth 90 times sales.

Note that I’m not the only one who sees this stock as overvalued. Recently, another media outlet ran an article entitled ’Palantir might be the most overvalued firm of all time’.

How I’m playing the AI boom

Given my take on the landscape, I’m going to keep investing in AI. But I will pick my spots, investing in companies I feel are trading at reasonable valuations.

I’ll also remain diversified. That way, if AI stocks do crash, my portfolio won’t burst with it.

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Edward Sheldon has positions in Alphabet and Microsoft. The Motley Fool UK has recommended Alphabet and Microsoft. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Prediction: I think this AI stock will smash Nvidia and Palantir over the next 12 months

Temp_user_67fe843122a8d — Tue, 02 Sep 2025 12:05:37 +0000

Nvidia (NASDAQ: NVDA) and Palantir (NASDAQ: PLTR) are probably the two most popular artificial intelligence (AI) stocks today. And for good reason – both are at the heart of the AI revolution and generating prolific growth.

Over the next 12 months, however, I see more potential in another AI stock. Here’s why I reckon it will outperform these shares over this timeframe.

A top AI stock

The stock I want to highlight today is Snowflake (NYSE: SNOW). It helps organisations store and structure their data and then apply AI solutions to it.

This company came to the market back in 2020. Currently, it’s trading well above its Initial Public Offering (IPO) price, but well below its all-time highs.

Investors are discovering Snowflake

There are four main reasons I believe Snowflake can outperform the other two stocks over the next year. The first is that the market is just waking up to the fact that this company is a key AI player.

We can see this in the share price. While shares in Nvidia and Palantir have been charging higher for years, this stock has only started to move higher in the last nine months or so.

Why are investors suddenly realising it’s a major AI play? Product revenue growth.

Last quarter (ended 31 July), product revenue came in at $1.09bn, up 32% year on year. That level of growth was up from 26% the previous quarter, signalling that demand for the company’s data/AI solutions is increasing.

Analysts are bullish

Second, analysts are scrambling to lift their price targets. Since Snowflake’s last earnings report on 27 August, the stock has received a ton of upgrades.

Nvidia and Palantir have had upgrades too recently. But there have been more here (around 30 brokers have increased their price targets for Snowflake over the last week).

Note that a lot of analysts see the potential for gains of 20%-25% in the medium term. Broker price target increases generally push a stock higher.

Smaller market cap and lower valuation

Next, we have the company’s size. Today, Snowflake is far smaller than the other two businesses.

Currently, its market cap is only around $80bn. That compares to $370bn for Palantir and $4.3trn for Nvidia.

Related to size is valuation. Looking at price-to-sales ratios, Snowflake is currently trading at 17 versus 21 for Nvidia and 89 for Palantir.

So, it’s significantly cheaper than the other two stocks by this metric.

Potential for a catch-up

Finally, and this ties back to my first point, Snowflake has lagged other AI stocks over the medium term. While Nvidia and Palantir have soared to new all-time highs over the last year, Snowflake hasn’t.

So, I think it has some catching up to do. I expect it to outperform as investors realise this company is the real deal when it comes to AI.

Worth a look

Now, there’s no guarantee it will outperform the other two AI stocks of course. The company faces competition from firms like Amazon and Databricks and a slowdown in growth is always a risk.

It’s worth pointing out that the valuation is high. Therefore, it could experience a wobble over the next 12 months (as could Nvidia and Palantir).

I’m excited about the potential here though. I think Snowflake is worth considering as a growth stock today.

The post Prediction: I think this AI stock will smash Nvidia and Palantir over the next 12 months appeared first on The Twelfth Magpie.

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Edward Sheldon has positions in Amazon, Nvidia, and Snowflake. The Motley Fool UK has recommended Amazon, Nvidia, and Snowflake. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.