The artificial intelligence boom in equity markets is showing increasing signs of a bubble, but it is unlikely to burst in 2026, according to Jonas Goltermann, deputy chief markets economist at Capital Economics. Goltermann outlined three key reasons for this view. He noted in a recent analysis that technology earnings momentum remains robust. The September reporting season reinforced this, despite a muted market reaction.
Goltermann emphasised that major technology firms possess well-established and highly profitable core businesses, providing a solid foundation compared to the dotcom era of the 1990s. While current valuations are elevated relative to historical averages, they remain below the peak levels observed during the dotcom boom. When considering the equity risk premium, which incorporates the discount rate, valuations appear less stretched due to lower Treasury Inflation-Protected Securities (TIPS) yields compared to the late 1990s.
Furthermore, Goltermann believes that the adoption and investment cycle surrounding AI is still in its early stages from a macroeconomic perspective. The ongoing rollout of AI technologies and the boom in data centre investments have considerable room for further expansion. He notes that reported capital expenditure and analysts’ projections for future investment continue to increase. This trend directly fuels the equity market rally by generating earnings for companies in the chip and data centre supply chains and signals confidence in both actual and anticipated demand for AI tools.
