Should we be worried about a crash? Here’s my take.

The AI bubble

There are a few things I want to address here. First, let’s talk about artificial intelligence (AI) – is it a bubble (where valuations are completely detached from reality) and a repeat of the late 1990s?

I don’t think so. The reason why is that the companies spearheading this technology revolution – like Microsoft, Alphabet, and Amazon – have extremely strong, diversified business models, tons of cash flow, and fortress balance sheets.

Meanwhile, their valuations aren’t crazy. Alphabet, for example, currently sports a price-to-earnings (P/E) ratio of around 25.

Having said all that, tech stocks are known for having sharp pullbacks at times. It happened in 2018, 2022, and early 2025, so we can’t rule out another one.

Bubbles in the market

Now, while I don’t see AI as a bubble, I do believe there are bubbles in other areas of the market. Quantum computing’s a good example.

Take the stock Quantum Computing (NASDAQ: QUBT) for instance (the fact its name is the same as its industry is a major red flag, if you ask me).

Currently, this company has a market-cap of around $4bn. Yet sales for this year are only expected to be around $440,000.

So we’re looking at a price-to-sales ratio of about 9,100. I reckon that valuation’s detached from the fundamentals.

To put that in perspective, AI company Palantir, which has been called one of the most overvalued companies in history, has a price-to-sales ratio of about 100.

Of course, quantum computing (the industry) has lots of potential. I just think the stocks in it have gott way ahead of themselves. And therefore I wouldn’t be surprised to see a meltdown in this area of the market at some point.

The general backdrop for stocks

Zooming out and looking at the broader market though, I reckon the backdrop for stocks looks okay.

In the US, interest rates are coming down and this should be supportive for businesses. Note that stocks have historically done well as rates have come down.

Meanwhile, US corporate earnings are rising. For Q4 2025 through Q2 2026, analysts are calling for earnings growth rates of 7.3%, 11.8%, and 12.7% respectively, according to FactSet.

Turning to the UK market, many stocks still look attractively valued. Within the FTSE 100, there are many companies with P/E ratios of less than 15.

As for UK small-caps, many of these stocks continue to trade at bargain valuations. There’s definitely no bubble here.

One other thing worth mentioning in relation to stock market crashes is that we’ve already had one in 2025 (in April). Two in a year is basically unheard of.

Avoiding a crash

So the way I see it is that investors owning a solid, well-diversified portfolio probably don’t need to be too concerned about a stock market crash. Those invested in a range of high-quality companies trading at reasonable valuations, and minimising exposure to areas of the market that look outrageously expensive, I think should be fine in the long run.

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The quantum buzz

The recent surge in Quantum Computing’s stock price can be attributed to a series of positive developments, arguably some taken out of proportion, culminating in a contract with NASA. In you hadn’t noticed, quantum stocks have been receiving a lot of attention in recent months, partially due to the recent unveiling of Google’s Willow chip, but also things like developments in ion-ion transfer.

On 17 December, 2024, Quantum Computing announced that it had secured a contract with NASA’s Goddard Space Flight Center, sending its shares soaring and compounding gains from earlier in the autumn.

The NASA contract centres around the firm’s Dirac-3 technology, an entropy quantum optimisation machine that could revolutionise advanced imaging and data processing. Specifically, the technology will be applied to tackle the complex ‘phase unwrapping’ problem in interferometric data generated by radar.

In short, this could have various applications for NASA such as Earth observation, climate monitoring, and space exploration. But for Quantum Computing, this collaboration will hopefully demonstrate the superiority of the company’s quantum optimisation machine over traditional algorithms used on classical computers.

Expert caution

Despite the excitement surrounding quantum technologies, investors may want to exercise caution.

Danil Sereda, Investing Group Leader, for Beyond the Wall Investing, warns that the quantum computing space is highly competitive, and only one or two companies are likely to survive in the long run. He cautions against investing broadly in the entire niche without understanding each company’s specific prospects.

Sereda also points out the disconnect between skyrocketing market caps and actual financial performance — it has a price-to-sales ratio of 3,980 times. For instance, Quantum Computing’s market capitalisation has soared to nearly $2bn, despite reporting little revenue and continued losses. The loss-making situation doesn’t look like improving anytime soon.

The bottom line

While Quantum Computing’s recent NASA contract and the resulting stock surge are undoubtedly exciting, investors should approach with caution. The quantum computing sector is still in its infancy, and while the potential is enormous, so are the risks.

With some of the artificial intelligence (AI) excitement running low, retail investors may have turned to quantum technologies as a new frontier for potential growth and innovation. And while I’m personally very excited by developments in quantum computing, I’m also concerned that these astronomical gains may be something of an overreaction, exaggerated by FOMO.

I’m also very aware that if I had invested in the stocks in the ‘quantum watchlist’ I made in September, I’d be a very rich man right now. However, for now at least, I’ll continue to watch from the sidelines. It’s hard to justify the valuations.

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