Artificial Intelligence: Boom or Bubble?

What’s in this article:

• The current state of AI investment and integration: a productivity boom
• Is AI experiencing mania? AI bubble risks
• Coldstream’s AI outlook
• AI: boom or bubble?

Artificial intelligence (AI) dominates headlines these days, but how can investors distinguish a clear signal amid the noise? AI is already affecting the global economy, with projections for future impacts ranging from “enormous” to “staggering.” While this seems to be a truly transformative technology, what will that mean when translated through markets: are we looking at the kind of boom that tech leaders are hyping, or is this the exuberant sentiment of a speculative bubble?

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The current state of AI investment and integration: a productivity boom

Artificial intelligence has already begun reshaping the real economy. On one hand, it is driving dislocation for workers—changing job descriptions, automating tasks, putting pressure on certain roles and skill sets. On the other hand, it is unlocking a meaningful boost in productivity, making it possible for workers and companies to do more with the same—or fewer—resources. Companies are clearly seeing enough advantage to invest heavily in AI, and the use of AI tools is rapidly expanding, both in the U.S. and globally.

Let’s examine some key statistics that will help provide a picture of the current state of AI investment and integration:

• Increasing AI revenue: The global AI market is estimated to have generated approximately $758 billion in revenue, an increase of 22% over 2024. It’s estimated that the U.S. AI market size is approximately $165 billion (as of the end of 2025).
• Expanding business use of AI: 88% of businesses reported actively using AI in 2025 (up from 78% in 2024), bumping artificial intelligence up from the pilot programs of a couple of years ago to becoming core business infrastructure. 89% of small businesses in the U.S. say they are using artificial intelligence capabilities for everyday tasks.
• Massive private investment in AI: Private investment in AI in the U.S. reached a stunning $109.1 billion in 2024—compare that to China’s $9.3 billion and the U.K.’s $4.5 billion.
• Worker exposure to AI: About 40% of jobs worldwide are already exposed to artificial intelligence, mostly in developed countries. Estimates suggest that about 11% of the population—900 million people—actively used AI tools in 2025. The International Monetary Fund estimates that about 60% of jobs in advanced economies are exposed to AI, with half negatively affected and the rest benefiting from enhanced productivity.
• AI impacts on job markets: PwC’s Global AI Jobs Barometer reports that 100% of industries are increasing AI usage, that industries more exposed to AI experience 3x higher revenue per worker, and that workers with AI skills command a 56% wage premium versus those in the same job without AI skills. The report also estimates that wages are rising twice as fast in industries with the greatest exposure to artificial intelligence.
• Rising labor productivity: Goldman Sachs Research projects that breakthroughs in generative artificial intelligence could increase productivity growth by 1.5 percentage points over the next ten years, leading to a 7%—or nearly $7 trillion—increase in global GDP.

Generative AI is improving efficiency across multiple industries, streamlining workflows, automating routine tasks, and delivering new business applications. While there are likely to be disruptions in the job market, most researchers suggest that we’ll also see a steady flow of new roles being created as other jobs are phased out, resulting in some churning of the job market rather than a cliff of sudden job losses.

Is AI experiencing mania? AI bubble risks

While AI adoption sweeps the globe with a resulting rising tide of productivity, there is a flip side to the equation. Overspending, concentration, outsized valuations, and unrealistic expectations may be setting the market up for trouble. History shows that frenzied investment booms often overshoot real demand and lead to overcapacity and weak returns. Consider the telecom companies of the late 1990s spending hundreds of billions to lay fiber-optic networks only to face a glut of unused capacity and collapsing prices when their anticipated internet traffic failed to materialize. Similarly, today’s aggressive AI race is turning tech giants into asset-heavy businesses, a shift that has historically compressed profit margins.

What are some of the key concerns around AI’s impact on the market?

• Overspending on AI buildouts and infrastructure: Big tech firms are planning investment of roughly $5.2 trillion over the next five years, with over $400 billion in 2025 alone. Investors are rightly concerned that this may reflect overinvestment, outpacing current business fundamentals; one analysis suggests that this this scale of investment would require generating an unrealistic $2 trillion in annual revenue by 2030.
• Concentration among a small group of tech stocks: The mega cap “Magnificent 7” stocks (Alphabet, Amazon, Apple, Tesla, Meta, Microsoft, Nvidia) now account for about a third of the S&P 500 Index and have driven most of the Index’s gains over the past few years. In addition to this small group of companies dominating market returns and valuations, we believe AI optimism has largely already been priced in (see the next point about overvaluation).
• Overvaluation among tech leaders: The AI hype has led to a degree of euphoria among investors, whose expectations of growth in tech giants is driving high valuations. But the surge of capital spending on infrastructure and data center buildouts means that these companies have already extended themselves and may face limited near-term revenue growth. This is not to say that long-term growth won’t catch up, but this massive AI infrastructure spending without commensurate revenue growth could erode the profits investors are banking on.

In the late 1860s, investors were scrambling to pour money into railroad stocks as they expanded across the country, building out critical infrastructure. But early investors suffered several rounds of overextension and bankruptcy before the market stabilized and became fully integrated into the economy. This lesson is an important reminder during this phase of artificial intelligence integration; the infrastructure builders are pouring enormous capital into AI and are trading at significant valuation premiums, making this segment both highly concentrated and potentially vulnerable if expectations falter.

Coldstream’s AI outlook

It’s important to distinguish between companies building AI infrastructure and those that are early adopters of AI in their operations. The long-term winners of a technological revolution have often been those businesses that use the technology rather than those that build the infrastructure itself. We expect to see a similar pattern in this case, where the ultimate economic value may accrue more to the adopters—such as in finance, healthcare, industrials, etc.—that leverage AI effectively rather than exclusively to the infrastructure providers.

Given that, we maintain a cautious but constructive and thoughtful approach to artificial intelligence. Coldstream has deliberately kept an underweight stance on U.S. large cap growth stocks, including many of the big tech giants, to avoid overexposure to what we view as a potentially overvalued and crowded trade. We favor a more diversified approach to capturing the potential upside of artificial intelligence by gaining exposure through a broader mix of companies and sectors, seeking established firms in industries such as finance, healthcare, and industrials, that are early adopters of AI. We look for more grounded valuations and prudent capital spending as a foundation for long-term growth potential.

At the same time, AI is not just a U.S. story, and we are keeping a global perspective, seeking select international exposure as well. Parts of Asia—especially China, Korea, and India—are investing aggressively to become AI hubs. Given the increasingly competitive race for AI leadership between the U.S. and key international markets, we believe maintaining exposure to both is an important way to participate in potential growth opportunities. We are also well aware that AI adoption is uneven across regions and that regulatory or geopolitical developments around data, competition, and key resource exports could periodically disrupt specific companies or markets. We also recognize that because developed countries are in a better position to invest in and benefit from artificial intelligence, they are likely to experience the greatest gains in growth and productivity.

As always, diversification is critical and even within the AI theme, we are working to gain exposure across both AI enablers—semiconductors, cloud and infrastructure, data and cybersecurity— and AI adopters—industrial, healthcare, financials—as well as across regions and countries. We balance this growth exposure with high-quality fixed income and other diversifiers to help cushion volatility and provide some stability during periods of uncertainty.

AI: boom or bubble?

The rapid expansion of artificial intelligence shows qualities of both boom and bubble; the key for investors is having a thoughtful, long-term approach to take advantage of opportunities while being mindful of risks. We expect AI to cause disruption and dislocation while also delivering enhancements to productivity and leaps in growth. It’s likely that the buildout of infrastructure and integration will ebb and flow—and maintaining a diversified and balanced approach through the AI transition will help strategically capture the upsides while mitigating volatility.

At Coldstream, our role is to help you reach your long-term financial goals by staying appropriately invested for your objectives, risk tolerance, and individual situation. Please feel free to reach out if you would like to discuss how this applies to your portfolio.

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