Capstone – Dec. 3 2025
By Bryce Pease CFP® Accredited Investment Fiduciary® Casey Morris CFP® Capstone Pacific Investment Strategies, Inc. California, Colorado, Nebraska
Artificial intelligence (AI) is receiving lots of attention in the news and within the investment world. Besides wondering if AI will replace your job someday, your investment accounts and your retirement account at work may have some of your money invested in AI companies.
Many experts and market commentators have begun talking about the prospect of an “AI bubble” in the media. So, while the markets have performed well — with all three major indices recently setting new record highs1 what began as a whisper has become louder and more prominent in recent weeks. While stocks are up for the year, the word is starting to inject a note of uncertainty into the markets…and when uncertainty comes, volatility follows.
A bubble itself is not a problem. It’s whether that bubble will burst that worries investors. We are notpredicting this bubble will pop. The thing about bubbles is that it’s difficult, or as we believe, it’s impossible to tell how big they are, or even if they’ll pop. Many market commentators have predicted an asset bubble will burst only to be proven wrong.
The “b” word is not one most investors like to talk about but let’s define the term. A bubble is when the price of something rises unsustainably high above its actual value. A bubble can form within the overall economy, like the housing bubble of the mid-2000s. It can form within the stock market, like the dotcom bubble that began in the late 1990s. Even a specific product can prompt a bubble, like the “beanie baby craze” of the mid-90s. Perhaps the most famous example is the “tulip mania” bubble, which occurred in the Netherlands all the way back in the 17th century. In each example, unprecedented levels of hype — for easily-financed houses, internet stocks, or even stuffed toys — drove demand far above supply. This caused prices to skyrocket far above what those things were normally worth.
In each case, investors eventually realized they were not likely to see a return high enough to justify their investment. This prompted them to sell, and quickly. The sudden drop in prices created a panic in which nearly everyone tried to sell at the same time, often for bargain-bin prices. The bubble had burst, and people lost money. So, why do some experts speculate that we might be in a bubble now? And what does that have to do with AI? We’ll talk about that in our next article.
Casey and Bryce
- “All four U.S. stock market indexes just closed at record highs,” Morningstar, https://www.morningstar.com/news/marketwatch/2025102832/all-four-us-stock-market-indexes-just-closed-at-record-highs-heres-what-history-says-happens-next
Any mention of a particular security or type of security is not a recommendation to buy or sell that security. Investing involves risks including the possible loss of capital.