With firms like Nvidia and Microsoft leading the way, AI stocks will be a significant growth investing focus in 2025. Analysts contend that valuations are not a sign of a bubble, despite worries about possible bubbles. Amidst market volatility, it is recommended to make selective investments in lucrative businesses.
Due to significant capital investments in cloud and AI infrastructure as well as growing use across a range of industries, AI stocks remain a major target for growth investing in 2025. Nvidia, Palantir Technologies, Alphabet, Advanced Micro Devices Inc. (AMD), Microsoft, Broadcom, and Cloudflare are among the notable corporations that have recently come under scrutiny while balancing possible advantages against market instability and conjecture.
As investors draw comparisons to the dot-com boom of the late 1990s, worries about possible AI valuation bubbles and market volatility have increased, reflecting a cautious mindset in some quarters. However, because of the unmatched economic impact of AI technology, many analysts continue to view core AI equities as long-term growth prospects.
There have been concerns about whether the growth in AI equities signals a bubble, although some contend that although values are high, they fall short of the bubble levels observed during the tech boom of the late 1990s. It does not imply a bubble or crash, but a good correction can be expected, which could increase the appeal of valuations.
According to Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, the biggest worry in markets right now is a "AI bubble burst." The issue with a bubble burst and ensuing market meltdown is that, due to the enormous global exposure to US stocks, it will have worldwide repercussions.
Nonetheless, there is a compelling case to be made that AI stock prices are not in bubble territory and are far from the tech boom of the late 1990s. Dr. VK Vijayakumar continued, "A correction in AI stock prices without causing a burst is a likely scenario."
For example, Nvidia is the best example, according to Viram Shah, founder and CEO of Vested Finance. At one point, the company's sales increased by more than 250% year over year, while its stock has increased by more than 700% since the beginning of 2023.
Viram Shah stated, "Even then, its forward P/E is around 30–35 times, which is high but nowhere close to the 100× valuations seen during the dot-com mania."
|
AI
Stocks |
YTD
returns (%) |
|
Nvidia |
35.94% |
|
Microsoft |
12.46% |
|
Advanced
Micro Devices Inc |
78.04% |
|
Alphabet |
67.23% |
|
Palantir
Technologies |
114.53% |
|
Broadcom |
63.03% |
|
Cloudflare |
80.15% |
What sets the present boom apart from the dot-com bubble?
Over the past two years, AI stocks have increased significantly, raising concerns about a possible bubble. However, analysts claim that AI equities are far from bubble territory, particularly when contrasted with the late 1990s tech bubble. As a result, let's look at the distinctions and parallels between the two that can bring up memories of that era's tech bubble.
Appreciate's founder and CEO, Subho Moulik, clarified that today's Magnificent Seven are extremely lucrative and self-fund their capital expenditures, in contrast to the dot-com period when businesses wasted cash without returns.
In Q3 2025, they produced enormous operational profits, with their $100 billion in total capital expenditures accounting for slightly more than half of those profits. According to Moulik, this shows financial strength rather than despair.
Subho claims that several pure-play AI companies do exhibit considerable overvaluation, which might be compared to a bubble: Palantir has a market capitalization of about $368 billion and revenue of about 80 billion; C3.ai, SoundHound, and CoreWeave have revenue of more than 15 billion; and no public AI company has made more than $5 billion. Even OpenAI, which is valued at $500 billion, recently achieved $10 billion in sales.
Everything you should know about AI infrastructure
The market for AI infrastructure is expected to grow at a quick annual rate of 18% and reach $200 billion, according to analysts. But chips are not the only limitations on AI infrastructure. For example, the energy sector is a key predictor of AI growth since energy consumption is a major barrier to AI development.
Nvidia announced $57 billion in sales (+62% YoY) and $31.9 billion in net income (+65%), with $500 billion in anticipated chip orders for 2026, according to Subho Moulik.
"Tech companies are investing trillions in chips, data centers, and quantum computing; the AI theme is real." However, history shows that bubbles burst, so not all AI companies will be successful.
"Tech companies are investing trillions in chips, data centers, and quantum computing; the AI theme is real." However, history shows that bubbles burst, so not all AI companies will be successful. Additionally, infrastructure valuations may decline if consumer-facing AI majors fail. It's crucial to choose companies with strong fundamentals at fair prices rather than chasing hype," Moulik continued.
What do investors currently have to pay for?
Experts believe that the current level of AI adoption is what investors are funding. According to Viram Shah, over 85% of multinational corporations currently employ AI in at least one business function, and this percentage continues to rise.
Shah went on to say that Nvidia is not the only player in the AI story. Software firms like Adobe and ServiceNow, cloud providers like Microsoft and Amazon, and chipmakers like AMD are all incorporating AI into their main products.
Because businesses are testing and implementing new AI technologies at a rapid speed, some AI-first companies, like Palantir, have already experienced over 300% stock price surges in phases. The potential for economic growth is also significant. According to estimates from international research groups, AI might eventually increase global productivity by $2–4 trillion annually, which is why investors are still enthusiastic, said Viram Shah.
Do AI stocks make sense to invest in?
According to Dr. VK Vijayakumar, it is best to stay away from AI stocks at this time. They can be purchased during corrections, which make values appealing.
Conversely, Viram Shah stated that a well-rounded perspective would be beneficial. He thinks AI will produce long-term winners, but not all stocks with AI labels will be worth the price.
Shah claims that authorities are starting to focus more on data and model concerns, and several businesses have already reported that early AI projects are not yet demonstrating a significant return on investment.
According to Viram Shah, "investors can continue to be involved in the AI theme, but the safest approach is selective exposure to companies with real earnings, strong cash flows, and clear AI demand—not just the hype around it."
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