🫧 Are We In An AI Bubble?

In today’s newsletter I ask the question: Are we in an AI bubble? Then we discuss Netflix and Paramount Skydance’s offers to acquire Warner Bros. Discovery including who I think will win in the end, Kate Beckinsale tells a hysterical and completely over-the-top and inappropriate story which we just loved, Lando Norris wins the 2025 Formula 1 World Drivers' Championship, SpaceX seeks a valuation of $600 billion dollars to become the number one private company with the highest valuation, and Inter Miami FC wins the MLS Cup.

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🫧 Are We In An AI Bubble?

Are we in an AI bubble? It's the question that everyone on Wall Street and Main Street is asking as we witness the meteoric rise of companies at the center of the Artificial Intelligence revolution. You don’t have to look any further than the sky high valuations of AI chip powerhouses like Nvidia, which is currently valued at an eye-watering $4.44 trillion dollars, and AMD, whose stock has rallied more than 83% in 2025. Then you have the cloud computing giants like Oracle and Alphabet’s Google, which are racing to build out their infrastructure to handle the massive demand for AI. Oracle, with a market cap around $625.21 billion dollars, has seen its stock jump more than 171% over the last three years. Even hyperscalers like Microsoft, Meta, and Amazon are spending billions of dollars in capital expenditure on data centers, and their investors are expecting huge future returns on those investments. Google is undertaking an aggressive $85 billion dollars capital expenditure plan for 2025 for its AI and Cloud infrastructure buildout, giving its Google Cloud business an annual revenue run rate now exceeding $50 billion dollars. Let’s get into it.

One reason to think we’re in an AI bubble is by looking at the staggering gains in the stock market this year, which some compare to the good ’ol days of the dot-com bubble of the late 90s and early 2000s when the S&P 500 rose by approximately 170%, and the Nasdaq Composite Index surged by approximately 572%. Today the S&P 500 has seen a total return of 18.22% in 2025, following a massive 25.02% total return in 2024. The Nasdaq Composite has also shown incredible momentum, posting a 29.6% total return in 2024 and continuing its surge in 2025. Even the broader Dow Jones Industrial Average is up around 12.72% in 2025. 

Specific companies at the core of the AI boom are driving these market gains. For instance, Nvidia’s stock has surged over 33.5% in 2025 alone, while AMD’s stock has posted gains of approximately 83.0% for the year. Even established giants have seen huge moves, with Microsoft’s stock rising by nearly 14.8% and IBM’s stock up an impressive 39.9% in 2025. Meta is up around 8.5% this year, and Oracle has seen its stock rise around 32.2% in 2025. Meanwhile, the valuations of some companies seem to defy traditional metrics. The trailing Price to Earnings ratio for AMD is hovering around 125 times, which is an elevated valuation to say the least. The sheer speed of the market rally and the astronomical valuations for companies that have no earnings yet certainly bring back memories of the dot-com era when companies with no business plan or revenue were valued at billions of dollars. This time around, even profitable leaders like Nvidia carry a heavy valuation burden, trading at a price-to-sales ratio around 23 times sales.

Adding to the bubble conversation are the colossal funding rounds secured by AI startups at valuations that seem completely unhinged from current financial performance. OpenAI is my #1 example. OpenAI, which, after a massive $40 billion Series F funding round in March 2025 that valued the company at $300 billion, saw its valuation surge to a staggering $500 billion dollars in October 2025, following a secondary share sale, making OpenAI the number one private startup with the highest valuation. Another AI startup, Safe Superintelligence, which was founded by former OpenAI executives Ilya Sutskever and Daniel Levy as well as startup founder Daniel Gross, raised $2 billion dollars at a $32 billion dollar valuation in April 2025 without a product on the market. Then we have xAI, founded by Elon Musk, which closed a $10 billion dollars debt and equity fundraise campaign in July 2025, which included $5 billion dollars in debt financing and placed the company's estimated valuation around $80 billion dollars. These valuations for pre revenue companies are truly historical, and dwarf any startups during the dot-com bubble. This speculative frenzy also extends to the battle for AI talent, with top researchers being offered compensation packages that reportedly can reach tens of millions of dollars in annual compensation, sometimes exceeding $250 million dollars over four years as was the case when Meta hired Matt Deitke, a 24-year-old AI researcher known for his work on multimodal systems. This highlights the extreme competition for core AI intellectual property.

One big key difference between now and the dot-com bubble is that this time around, the companies that are doing the massive spending on AI data centers and infrastructure are not unprofitable startups. They are global giants that are making billions of dollars in revenue and profit. Nvidia’s fiscal year 2025 total revenue was a record $130.5 billion dollars, representing a massive 114.2% year-over-year increase, with its data center revenue alone soaring over $30.8 billion dollars in the third quarter of fiscal 2025. Amazon’s cloud business, AWS had over $100 billion dollars in annual revenue and $40 billion dollars in operating profit in 2025. Amazon is planning to increase its 2025 capital expenditures to more than $100 billion dollars, mostly to expand its AWS AI capacity. Microsoft, Meta, and Alphabet are also generating billions of dollars in revenue from their AI initiatives. Microsoft, through its Azure cloud and AI services, saw its AI business reach an annual revenue run rate of $13 billion dollars in the second quarter of fiscal year 2025, a stunning 175% increase year over year. Alphabet’s Google Cloud revenue, which is heavily fueled by AI infrastructure demand, grew 32% year over year to $13.6 billion dollars in the second quarter of 2025. Meta, while still primarily an advertising company, is seeing strong revenue growth that funds its AI spending, with its overall revenue increasing 26% year over year to $51.24 billion dollars in the third quarter of 2025. Even Oracle, which signed a landmark $300 billion dollars cloud computing contract with OpenAI in September 2025, expects its cloud infrastructure revenue to reach $25 billion dollars this fiscal year. Other major players like Intel and IBM, are also significantly profiting from the AI surge. IBM specifically generated a significant portion of its total revenue, estimated around $28 billion dollars in 2025, from AI-boosted segments like consulting and Red Hat cloud, which have seen billions of dollars in generative AI bookings. These are companies with strong balance sheets that are investing their profits into infrastructure, rather than the speculative frenzy of the late 90s.

The biggest question facing the markets today is whether this AI boom is sustainable, or if we are watching a bubble form right before our eyes. We see the sky high valuations for AI chip leaders like Nvidia and AMD, and the rapid growth of cloud giants like Oracle and Alphabet. The massive capital expenditures by hyperscalers like Microsoft, Meta, and Amazon are all driving the current market dynamics. It’s hard to look at the numbers and not ask the question: Are we in an AI bubble?

Quick Hits

🎬 Business

Over the weekend Netflix agreed to acquire the film and streaming assets of Warner Bros. Discovery, including HBO and HBO Max, for a $72 billion dollars equity value, which represents a total enterprise value of approximately $82.7 billion dollars, with Netflix using both cash and stock in an offer of $27.75 dollars per share.

David Ellison's Paramount Skydance, which started this whole thing by making an unsolicited offer to buy all of Warner Bros. Discovery, including their television assets, quickly launched a hostile takeover bid by going directly to shareholders with a superior, all-cash offer of $30 dollars per share for the entire company, creating an offer that values the entire company at $108.4 billion dollars.

Where’s David Ellison going to get all that cash? Good question. David Ellison’s dad, Larry Ellision is worth $272.9 billion dollars, and has already helped his son to the tune of billions of dollars to fund Skydance, and the recent merger with Paramount. Now Paramount Skydance has partnered with Affinity Partners, the private equity firm led by Donald Trump's son-in-law, Jared Kushner. They’ve also secured investments from the sovereign wealth fund of Saudi Arabia's Public Investment Fund, the Qatar Investment Authority, and L'imad Holding Company PJSC, which is an entity owned by the government of Abu Dhabi, as well as a large debt component that has been fully committed by major banks and financial institutions, including Bank of America, Citi, and Apollo Global Management.

In a twist that literally everyone except Netflix saw coming, President Donald Trump has publicly voiced concern that the proposed Netflix deal could be a problem due to market dominance and pledged to be involved in the final regulatory decision. We all know what that means. This Netflix deal is never going to close, and they have pledged $5 billion dollars in a breakup fee if the deal falls through.

🥚 Entertainment

Kate Beckinsale was on Jimmy Kimmel recently, and told this insane story. My words can’t do it justice, so check out the clip below:

🚚 Delivery

Amazon is considering ending its 30 year partnership with the US Postal Service, and will instead conduct a reverse auction for delivery contracts. Negotiations with US Postal Service have stalled lately, and if Amazon stops using them it could cost the financially troubled US Postal Service nearly 8 percent of its total revenue, which was $79.5 billion dollars for fiscal Year 2024. If they lose 8%, which would come out to $6.36 billion dollars, then the US Postal System would only bring in $73.14 billion dollars. The US Postal Service already loses around $9 billion dollars a year, so for fiscal year 2026 they could be looking as a loss of $15.36 billion dollars a year. Ouch!

🏁 Formula 1

Lando Norris, the 26-year-old British driver for the Formula 1 team McLaren, claimed his maiden Formula 1 World Drivers' Championship at the intense Abu Dhabi Grand Prix on Sunday, winning the title by only two points with 423 points over four-time champion Max Verstappen of Red Bull, who won the race, while McLaren teammate Oscar Piastri finished a close third in the overall drivers' standings with 410 points after accumulating seven Grand Prix victories and eighteen podium finishes across the twenty-four race season.

With this win Lando Norris will receive a $10 million dollars championship bonus, contributing to his total on-track earnings of $57.5 million dollars for 2025, which is still far behind Max Verstappen's $76 million dollars in earning for the year.

And in a quirk of the Formula 1 sport, the winner of the Formula 1 World Drivers' Championship has to pay a pay a huge super license fee based on how many points they scored the previous year, so Lando Norris could be on the hook to pay an estimated $1,191,250 for his Super Licence in 2026. Somehow, I think he can afford it!

🚀 Space

SpaceX is reportedly seeking an $800 billion dollars valuation in a new secondary share sale structure, which is double the company's prior $400 billion dollars valuation from earlier this year. This massive growth is driven by the Starlink satellite service, which currently serves over 8 million active customers. SpaceX won’t be receiving any of that cash. This secondary offering is to provide employee liquidity so they can sell shares that have been locked up in stock options since they started with SpaceX. Although there are now rumors that SpaceX could be exploring an IPO in 2026 that would raise $30 billion dollars and value the company at $1.5 trillion dollars if the stars align. Sorry, I couldn't resist the dad joke.

⚽ Sports

Inter Miami FC, co-owned by David Beckham, Jorge and Jose Mas, secured their first MLS Cup title in a 3 to 1 victory over the Vancouver Whitecaps over the weekend. Lionel Messi helped with two vital assists in a record-breaking postseason performance by the Argentine star. This historic win makes David Beckham the first individual ever to lift the trophy as both a player and as an owner. Inter Miami FC is now valued at approximately $1.2 billion dollars after winning their first MLS Cup.

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The Business Behind The News is written, edited, and published by Chris Thompson.