Not Every Rally's a Bubble

Every bull market gets compared to a bubble. When prices rise too fast or too far, investors reach for history’s easiest headline. The latest: “AI is the new dot-com.”

It’s not.

The setup today looks different than the late 90s. Back then, capital expenditures were built almost completely on borrowed money. Debt and dilution fueled the rally. Companies rushed to add “.com” to their names and raised billions on pure speculation. Few had real earnings, and ever fewer had free cash flow.

Looking at the market today, the leaders are not chasing money; they are producing it. Microsoft, Nvidia, Google, and Amazon are generating record cash flow are are using it to fund AI infrastructure. CAPEX isn’t coming from cheap debt and pure speculation.

Two summers ago I studied the history of financial bubbles and market psychology at the London School of Economics. The first lesson they drilled into us was, “Be careful believing this time is different.”

That is still true. But it’s also true that not every rally is a bubble. Declaring one too early is often just as wrong as ignoring one too late.

At some point AI will inflate beyond fundamentals. This has happened throughout history with any technological shift. But bubbles don’t start with free cash flow and fortress balance sheets. They start with debt, desperation, and euphoric participation. We are currently not near that stage.

Right now, the market’s strength is concentrated in a handful of dominant, profitable companies, who are funding innovation with real money. That is not the mania that so many market commentators claim.

Markets only become bubbles when everyone forgets what they’re paying for. Today, investors still know, and the numbers still back it up.