Is the AI bubble going to burst?

All anyone wanted to talk to me about during the Friendsgiving and Thanksgiving get-togethers was AI. “Can I use AI to make money?” Yes. “I love ChatGPT more than my wife.” You need a therapist. “I think all AI is all BS.” No, it’s not. 

But the question I heard the most was, “Is this AI bubble going to burst like the dot-com mess did?” So I know you might be wondering the same thing.

It’s December, a time when Wall Street is usually in full peppermint-latte celebration mode. The classic “Santa Claus Rally,” when stocks typically rise during the last stretch of the year, is one of the market’s most reliable gifts. 

😳 I call it AI anxiety

For the last two years, the “Mag 7” (that’s Nvidia, Microsoft, Google, Apple, Amazon, Meta and Tesla) carried the market on their backs. How much? They’re nearly one-third of the entire S&P 500. A historic high. 

Trillions in value were created on one big promise that AI is the future. And it is. No doubt about it. But when Q3 earnings rolled in last month, investors changed from “How cool is this AI tech?” to something far less fun: “OK, where are the profits?”

🫧 Analysts call it the ‘Capacity Bubble’ 

Now, this is not the dot-com bubble where companies had no revenue at all. This time, the companies do have revenue. They’re spending it faster than they can make it, though. That’s a problem for sure, but they need to build now for the future.

Big Tech is pouring over $200 billion every year into chips and data centers. Microsoft, Alphabet and Meta spent about $78 billion in Q3 2025 on AI infrastructure. Nvidia alone is spending more than Ford, GM and Boeing combined.

Some AI data centers are sitting half-finished because they cannot get enough power or cooling online. The money flowing back from those investments is not catching up. Think of it like building the world’s most expensive Ferrari, then using it to drive to Target.

🎅 Here’s the twist 

The “S&P 493” (that’s the rest of the index outside the giant tech players) is actually doing fine. Steady. Healthy, even. They delivered over 58% of the S&P 500’s total return through the first three quarters of 2025. 

That AI crash? The Mag 7 stocks have become so top-heavy that when AI gets the sniffles, your 401(k) starts shivering.

Is the Santa Rally canceled? December ends positive about three out of four years. If we do get a rally this year, it might not come from the usual tech darlings. It might come from the boring-but-beautiful categories like health care, utilities and consumer goods. By the way, utilities are going to be huge as AI data centers triple electricity demand over the next few years.

So don’t panic if you see volatility this month. This is the price of admission for the AI revolution. Take a look at your portfolio. If every dollar is riding on AI, you are basically putting all your cookies in one tin. Even Santa spreads things around.

Tags: Amazon, Apple, gifts, Google, Thanksgiving