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AI Mania? Keep the Same Discipline
Hoxton Blog • AI Mania? Keep the Same Discipline
Shutdown headlines may have dominated the newsreel last week, and you can read my take in this article.
But the news has landed alongside a different, and likely longer-running, theme: the market’s artificial intelligence (AI) high.
Everyone’s throwing cash at AI, prices are soaring, and even veteran investors are saying: “This feels bubbly.”
Talk of a looming downturn is gaining traction, with many asking whether the current AI boom could end in a bust – echoing the dot-com crash of the early 2000s.
Whenever a technology attracts this much excitement, the natural question arises
But how likely is this? And if it does happen, what will it mean for investors?
What’s Driving the AI Boom?
The drumbeat around AI has grown impossible to ignore.
It’s everywhere: powering the apps we use, reshaping entire industries and driving some of the stock market’s biggest stories.
Back in 2023, Bill Gates declared that the “age of AI” had begun, arguing it would reshape how we work, learn, and receive healthcare – on par with the advent of the PC and the internet.
That same year, Alphabet’s Sundar Pichai went even further, calling AI the most “profound technology” humanity is developing – more consequential, he said, than fire or electricity.
Investors have watched names like Nvidia, Microsoft and Google hit record highs as demand for AI tools and the infrastructure behind them has surged.
Right now, if a company says it is using AI, investors pile in and push the price up – even when the business isn’t making much money yet.
In Q1 2025, AI startups raised $73.1bn – about 58% of global venture capital funding, according to PitchBook – helped by very large rounds such as OpenAI’s $40bn. The trend is strong, but we still need to do proper homework, not cut corners.
Some parts of the stock market look pricey. When a company like OpenAI is talking about as being worth around $500bn despite limited profits, it shows investors may be getting carried away, and a lot of the risk is piled into just a few big names.
Echoes of Dot-Com
The closest comparison to what’s going on now is the dot-com boom of the late 1990s.
Back then, investors rushed into internet companies with sky-high valuations, many of which didn’t have sustainable business models.
The bubble eventually burst in 2000, wiping out trillions of dollars in market value.
But here’s the key lesson: while many speculative companies disappeared, the internet itself was not a fad.
The giants that survived – Amazon, Google, Apple – went on to reshape the world and deliver massive returns for patient investors.
And there are some important differences between where we are now and where we were at the turn of the century.
This time, there’s real revenue behind the rhetoric: hyperscalers are pouring money into AI data centres, and chip makers’ sales are surging.
That supports the story - though these markets can still be cyclical. If an AI bubble does deflate, it’s unlikely to vanish altogether.
What If the Bubble Does Burst?
Expect a bumpy ride. As in the dot-com era, many smaller or unproven AI startups may struggle – or fold – if they can’t meet lofty expectations. That’s not a reason to panic, but it is a cue to diversify across sectors and asset classes.
Big names are sturdier. Microsoft, Google, and NVIDIA can see pullbacks, yet their diversified businesses and stronger fundamentals make them more resilient than most – though that doesn’t mean you should pour everything into a few giants.
The long game still looks good. The internet didn’t vanish after the dot-com crash, and AI won’t either. Over time, true leaders should keep compounding.
It took about 15 years after the dot-com bust for the Nasdaq to regain its peak – a long stretch, but history favours time in the market over timing it.
Investing Principles Remain the Same
- Stay diversified. Don’t concentrate too heavily in AI stocks, no matter how exciting they look. Balance with exposure to other sectors and asset classes.
- Think long-term. Market timing rarely works. Even if there is a correction, the long-term trend of AI adoption is likely to be positive.
- Focus on quality. Established companies with strong balance sheets and proven AI businesses are safer bets than speculative startups.
- Use dollar-cost averaging. Investing gradually over time smooths out the highs and lows of market cycles.
AI may be the defining technology of our time, but that doesn’t mean every AI investment will succeed.
History shows us that bubbles tend to separate hype from reality – and in the end, patient investors who stay disciplined and diversified are the ones who benefit most.
Hoxton Wealth keeps you on that path: clear goals, balanced portfolios, sensible position sizes, and regular rebalancing – so you benefit from the trend without overexposing yourself.
If you’d like to discuss your portfolio, review your long-term plan, or simply seek reassurance during uncertain times, reach out to our client services team at client.services@hoxtonwealth.com or through our global WhatsApp line at +44 7384 100200.
Seize the opportunity, manage the risk, stick to the plan.
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