AI, Volatility and a Sense of Déjà Vu

Over the last week, global sharemarkets have been tossed around by headlines about an “AI bubble”, sharp falls in crypto, and worries that mega-cap tech stocks have simply run too far. Major indices in the US and Europe have sold off, with technology and other growth names at the centre of the turbulence.

For many investors, this feels uncomfortably familiar. In the late 1990s, anything with “.com” in its name could list at eye-watering valuations, despite little more than a business plan and a Superbowl ad. When the dot-com bubble burst, the Nasdaq ultimately fell around 78% from its 2000 peak to its 2002 low.

Today’s AI-driven rally has some similar emotional ingredients – hype, fear of missing out, and stories of spectacular winners. But under the surface, the dynamics are very different. The current cycle is dominated by a handful of highly profitable, globally systemic companies rather than hundreds of speculative start-ups, and that matters for how investors – including those in Toowoomba – should respond.

This article steps through what’s been happening in markets over the past week, how the current AI boom compares to the dot-com era, what big fund managers (including BlackRock) are saying, and what a thoughtful approach to Financial Planning Toowoomba clients might look like in an AI-driven world.

AI, Volatility and a Sense of Déjà Vu

What’s happened in markets over the last week?

In the past week, volatility has picked up sharply. A broad tech sell-off has seen major US and European indices fall, with investors rotating away from richly valued growth stocks and into more defensive parts of the market.

Concerns are particularly focused on AI-linked names. A widely watched survey of global fund managers from Bank of America found that “long US mega-cap tech” is now viewed as the most crowded trade in the world. Over half of respondents see AI as a bubble, and 45% name an AI bust as the single biggest risk for 2026.

At the same time, speculative assets have been hit hard. More than US$1 trillion has been wiped off the crypto market in about six weeks, with Bitcoin down around 25–30% over that period, as investors reassess how much risk they really want on the books.

Tech sector indices have also wobbled. The S&P 500 Information Technology sector is down more than 4% over the last five trading days even after a strong year overall. This sort of short-term shake-out is not unusual after a powerful multi-year run, but the AI narrative has amplified the nerves.

Why AI is at the centre of this volatility

AI has moved from niche theme to core market driver in a remarkably short time. As of late 2025, seven large tech companies with major AI exposure – including Nvidia, Apple, Microsoft, Alphabet, Amazon, Broadcom and Meta – account for roughly one-third of the total US sharemarket by value. When a theme is that dominant, any change in sentiment can ripple through portfolios worldwide.

Fund-manager surveys show that professional investors both believe in AI’s long-term potential and worry about how aggressively it’s being priced today. Many point to huge capital spending plans on data centres, chips and cloud infrastructure – Silicon Valley is projected to invest around US$400 billion in AI this year alone – and ask whether returns will arrive quickly enough to justify the bill.

Market leaders themselves are sounding a cautious note. Google’s CEO Sundar Pichai has acknowledged “irrationality” in some AI-related valuations and warned that no company, including Google, would be immune if an AI-driven bubble were to burst.

In other words, AI is no longer a side-theme; it sits at the heart of growth expectations, capital investment, and equity valuations. That’s why AI sits squarely at the centre of the current spike in volatility.

Are we in an AI bubble? What the research says

So, is this a bubble? The honest – and slightly uncomfortable – answer is “it’s complicated”.

On one hand, there are clear signs of froth. Goldman Sachs research has highlighted how valuations for AI-exposed companies have surged, just as AI-related capital spending explodes and flows into AI-themed strategies become increasingly circular (AI funds buying the same handful of AI winners). The IMF has warned that US shares are vulnerable to a “sharp correction”, noting that the “Magnificent Seven” mega-caps now make up roughly a third of the S&P 500.

On the other hand, the fundamental picture is much stronger than in a classic speculative bubble. Nvidia’s most recent quarterly earnings, for example, saw revenue up 62% year-on-year, beating already high expectations and guiding to even higher sales next quarter. Q3 earnings across the Magnificent Seven (excluding Nvidia) rose about 27%, roughly double analyst expectations, with growth now broadening beyond just one or two names.

At the index level, US technology shares are certainly not “cheap”, but they’re a long way from dot-com-style extremes. The S&P 500 Information Technology sector is up about 23% over the past year and trades on a price-to-earnings ratio near 39 – expensive versus history, but miles below the P/E of around 200 seen at the peak of the dot-com boom.

In short: there are bubble-like pockets around AI, but the core of the theme is backed by real earnings and cash flow in a way that 1999 never was.

A quick refresher: what actually happened in the dot-com bubble?

To understand today’s AI cycle, it helps to revisit what really happened last time.

Between 1995 and March 2000, the Nasdaq Composite index rose roughly five-fold as investors piled into anything related to the internet. Many of these companies were pre-profit start-ups with untested business models. Traditional valuation measures such as earnings and cash flow were largely ignored; “eyeballs” and website traffic were seen as enough.

At the peak, the tech-heavy Nasdaq reached a price-to-earnings ratio near 200. Venture capital and investment banks eagerly funded IPO after IPO, often for firms with no clear path to profitability. When confidence cracked in 2000, the consequences were brutal. By October 2002, the Nasdaq had fallen about 78% from its peak, wiping out around US$5 trillion in market value.

Many of the era’s poster-child companies – Pets.com, Webvan and others – disappeared completely. A majority of dot-coms never made a profit and simply ran out of cash.

Importantly, the internet itself did not turn out to be a fad. The technology was transformative; it was the pricing of early internet stocks that was unsustainable. That distinction is crucial when thinking about AI today.

How today’s AI cycle is different from the dot-com mania

There are at least three big differences between late-1990s dot-com and today’s AI boom.

1. The quality of the leading companies

During the dot-com era, many of the most talked-about stocks had tiny revenues, no profits and unproven products. Today’s AI leaders – Nvidia, Microsoft, Alphabet, Amazon, Meta and others – are large, mature businesses with strong balance sheets, diversified revenue streams and substantial free cash flow. Recent earnings seasons have seen robust growth from these companies, particularly in cloud and AI-related segments.

2. The breadth of speculation

In 1999–2000, speculation was broad and indiscriminate: retail investors chased any company with “.com” in its name. Now, the most intense AI enthusiasm is much more concentrated, mainly in a handful of mega-caps plus a smaller group of high-beta beneficiaries, such as data-centre and chip names (for example Western Digital, Micron and Palantir, which are among 2025’s best performers in the S&P 500).

3. Valuations and macro context

Valuations are rich but nowhere near dot-com extremes. The tech sector’s current P/E around 39 is stretched but not outrageous relative to its growth. Central banks are alert to financial-stability risks, and regulators have the dot-com experience to draw on. None of this guarantees a smooth ride, but it does make a repeat of the 2000–02 collapse less likely if earnings keep backing up the AI story.

Market concentration: the rise of US mega-cap tech

Where today does look dangerously similar to the late 1990s is in market concentration.

The so-called Magnificent Seven – Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta and Tesla – now account for around 35–37% of the S&P 500’s total market value, up from about 12% a decade ago. An Investopedia breakdown shows that information technology alone now makes up roughly 34% of the index, with just a few sectors dominating overall index weight.

Meanwhile, research from OptionMetrics suggests that the top 10 S&P 500 stocks are showing rising “crash risk”, as options markets increasingly price the possibility of a sharp drop after such a strong AI-driven run. The IMF echoes this concern, warning that a stumble in the mega-caps could trigger a broader market correction given their sheer size.

For diversified investors – including Australians accessing US shares via index funds and ETFs – this concentration cuts both ways. It has been a powerful driver of returns, but it also means that “owning the market” today involves a bigger bet on a small group of tech and AI names than it did in the past. That’s an important consideration in any Financial Planning Toowoomba conversation.

How have the big US tech and AI names performed in the last 12 months?

The headline numbers help explain both the excitement and the anxiety.

• The Nasdaq-100 index (dominated by large-cap tech) has delivered about 17% year-to-date in 2025, after gains of 24.9% in 2024 and a huge 53.8% in 2023 – an exceptionally strong three-year stretch.
• The S&P 500 Information Technology sector is up roughly 23% over the past 12 months and about 21% year-to-date.
• A “Magnificent Seven” portfolio has returned about 27% over the last year, compared with around 12% for the broader S&P 500.

Within the Magnificent Seven, performance has been uneven but impressive: year-to-date in 2025, Nvidia is up around 50.8%, Microsoft 22.9%, Meta 10.7% and Apple about 8%. Other AI-adjacent players such as Western Digital, Micron and Palantir have surged between roughly 150% and nearly 300% in 2025 alone.

Nvidia remains a useful symbol of the story. Over the last 12 months its total return is in the high-20% range, on top of enormous gains in prior years, and its market cap has pushed to levels once reserved for the biggest consumer and software giants.

Stock market information for NVIDIA Corp (NVDA)

• NVIDIA Corp is a equity in the USA market.
• The price is 186.52 USD currently with a change of 5.25 USD (0.03%) from the previous close.
• The latest open price was 184.89 USD and the intraday volume is 247246436.
• The intraday high is 198.47 USD and the intraday low is 181.25 USD.
• The latest trade time is Thursday, November 20, 11:15:00 +1000.

These numbers are not what you typically see in a sleepy, fairly-valued market. They’re exactly what you might expect late in a powerful thematic cycle, where sentiment and fundamentals are working together.

What global fund managers – including BlackRock – are saying

The professional money management community is far from unanimous, but some themes are clear.

The latest Bank of America fund manager survey shows a striking tension: cash levels have fallen to about 3.7% (a historically low level), while over half of managers think AI is already a bubble and many nominate an AI bust as the biggest market risk ahead. That’s classic late-cycle behaviour – people are fully invested but nervous.

BlackRock’s Investment Institute recently reiterated a “pro-risk” stance, arguing that prospective interest-rate cuts and the AI theme still support an overweight to US equities, particularly quality large caps. At the same time, they emphasise that AI is becoming more capital-intensive as hyperscale cloud providers ramp up spending and issue debt to fund data-centre build-outs, and they’re watching signposts such as Nvidia’s earnings very closely for any cracks.

Conversations we have with global fund managers – including teams at BlackRock – broadly align with these published views: generally still constructive on US equities and the long-term AI opportunity, but increasingly focused on valuation discipline, balance-sheet strength and diversification away from the most crowded trades.

Other major houses echo this nuanced stance. Morningstar’s November 2025 outlook suggests that, overall, US shares are trading at a small discount to their estimate of fair value, even though pockets of the AI complex look stretched. Russell Investments notes that while AI has created a “FOMO rally” in mega-caps, active managers are trying to be discerning rather than simply chase the same names.

The message: cautious optimism, not blind euphoria – but no appetite to write off US equities simply because of AI.

What this means for Australian investors and super funds

For Australian investors, the AI story is not some distant US phenomenon. It’s already embedded in many portfolios through global share funds, listed investment companies and ETFs held inside and outside superannuation.

Several Australian platforms and brokers have highlighted how US market returns in recent years have been dominated by mega-cap tech, and how ETF investors can now “dial up or down” their exposure to this concentration using targeted funds. For many balanced or growth super options, a meaningful share of international equity exposure ultimately sits in those same US names.

That carries two key implications for someone sitting in Toowoomba looking at their super statement:

1. You’ve probably benefited from the AI-driven rally, even if you’ve never bought a US share directly.
2. You’re also exposed to any shake-out in AI-linked megacaps, because of their heavy index weight.

The IMF’s warning about the risk of a “sudden, sharp correction” in US shares – particularly if the Magnificent Seven stumble – should therefore matter to Australian retirees and pre-retirees, not just Wall Street traders.

That doesn’t mean rushing to the exits. It does mean checking how much of your long-term wealth strategy is riding on a narrow slice of US tech, and whether that aligns with your tolerance for volatility – especially as you approach retirement and start drawing an income from your investments.

How a Toowoomba Financial Adviser might frame AI exposure

From a Toowoomba Financial Adviser perspective, the key is not to decide whether AI is or isn’t a bubble. The key is how much risk any single theme should represent in a well-constructed plan.

A sensible framework might include:

• Time horizon: a 30-year-old with decades to retirement can generally tolerate a higher allocation to growth themes (including AI) than someone already drawing a pension.
• Role of US equities: US shares, and particularly mega-cap tech, may continue to play a central role in global growth and innovation. But they’re just one part of a broader opportunity set that includes Australian shares, other international markets, bonds, infrastructure and cash.
• Valuation and position sizing: even great businesses can be poor investments if bought at the wrong price. Position sizes in AI-heavy funds or ETFs should reflect both upside potential and downside risk.
• Behavioural risk: FOMO and panic are both dangerous. A disciplined, rules-based approach to rebalancing can help take some emotion out of decision-making.

In practice, that means building AI exposure into portfolios deliberately, not accidentally – and ensuring it’s just one of several engines of long-term wealth, rather than the whole vehicle.

Practical portfolio principles in an AI-driven market

Regardless of age or asset level, there are some practical principles that can help investors navigate AI hype without losing sight of their goals:

1. Diversify beyond the AI darlings

   • Use broad global equity funds or ETFs alongside any more concentrated tech or AI exposures.
   • Ensure your portfolio has meaningful weight in sectors that benefit from different economic conditions – for example healthcare, industrials, consumer staples and quality income-paying shares.

2. Set guardrails for concentration

   • Keep an eye on how much of your total portfolio (and your super) is ultimately tied to a small group of US tech names.
   • Consider whether a maximum percentage in any one company, sector or theme is appropriate for your situation.

3. Rebalance with discipline

   • Periodically trimming exposures that have run ahead (for example, AI megacaps after a strong run) and adding to areas that have lagged can help lock in gains and maintain your intended risk profile.

4. Match strategy to life stage

   • For those seeking Retirement Financial Advice, the focus often shifts from maximising returns to managing volatility, sequencing risk and reliable income. That usually argues for more balance between growth and defensive assets – even if AI’s long-term story is compelling.

5. Leverage guidance wisely

   • An Online Financial Adviser or in-person planner can help stress-test your assumptions, model different market scenarios and ensure your AI exposure fits within a broader strategy tailored to your goals and risk tolerance.

These are not about predicting short-term market moves. They’re about building a portfolio that can live with whatever AI throws at markets over the next decade.

Final thoughts: using history without being trapped by it

The dot-com era is a powerful reminder that revolutionary technology and speculative excess often arrive together. The internet fundamentally changed the world; early internet stocks changed some investors’ lives for the worse.

Today’s AI cycle has echoes of that period – rapid share-price gains, heady expectations, and a handful of companies dominating market indices. But there are also crucial differences: stronger balance sheets, real earnings, and more measured (if still elevated) valuations.

For investors in Toowoomba and across Australia, the task is not to guess the exact top or bottom of the AI trade. It’s to ensure your Financial Planning Toowoomba strategy is robust enough that you don’t need to. That means diversification, sensible position sizing, and a clear link between your portfolio and your real-world goals – especially as you move towards and through retirement.

As always, this article is general information only and does not take into account your objectives, financial situation or needs. Before making major changes to your investment or superannuation strategy, consider obtaining personalised advice from a qualified professional who understands your circumstances.