Is The AI Boom a Bubble?

 

IS THE AI BOOM A BUBBLE?

 
 

Lately, there have been a wave of headlines calling today’s AI boom a “bubble.”

The New York Times and others have questioned whether valuations, capex, and investor enthusiasm are outpacing real progress. And yes – there is noisiness and froth in some corners.

But that’s not the full story.

At Fifth Era, we believe this moment looks less like a bubble and more like the next chapter of a long technology cycle that’s been building for over 60 years. The foundations are real. The impact is just beginning. And our strategy – top tier manager selection, early-stage focus, diversified stack exposure - is designed to stay smart, diversified, and grounded as the hype plays out.

(Note: nothing here is investment advice, and we’re not saying “there is no bubble.” We are saying our strategy is built for this kind of market.)

What Are The Indicators?

  • “This looks like dot-com 2.0.” Over half of global fund managers now say AI stocks are in a bubble, and even the Bank of England has warned that a sharp correction is possible if investor sentiment turns.

  • Valuations are huge. Ten private AI companies, including OpenAI and Anthropic, are now valued at over $1 trillion combined - yet none are profitable.

  • Massive spending. Tech giants are pouring hundreds of billions into data centers, chips, and models. That scale makes some investors nervous.

These concerns aren’t unfounded. There is excess capital chasing ideas that may not last. But as JP Morgan’s Jamie Dimon said last week, “You’ve got to go one by one. Some projects won’t pan out, but in total, it’ll probably pay off.”

The Nuance: Bubbles Build Real Value Too

Goldman Sachs, JPMorgan, and Wedbush all published notes this month arguing that the AI investment boom remains sustainable.

AI capex is still under 1% of U.S. GDP, compared to 2-5% in past technology cycles, and the potential productivity gains could unlock $8 trillion in long-term value.

Even if parts of the market correct, the underlying direction is clear. Just like the early internet, speculative energy tends to fuel the infrastructure that lasts. Google was founded in 1998, right before the dot-com crash - but being an early investor still changed everything.

How Our strategy Stays Grounded Through the Hype

We invest with the best.

We don’t back generalists chasing a trend. We back managers who live and breathe this technology - GPs and builders who’ve been in AI for decades. They know what’s a wrapper, what’s real, and what’s built to last.

We focus exclusively on early stage.

That’s where valuations remain defensible and the risk/reward still makes sense. Later-stage and growth rounds tend to inflate first and fall hardest when cycles turn. At the seed and Series A level, you’re investing in capability and team - not hype-driven revenue projections.

We diversify across the full AI stack.

We’re not only in enterprise “copilot” apps, which have drawn the most noise and inflated multiples. Our exposure spans:

  • Model layer: broad-use models and smaller, proprietary “SLMs.”

  • Infrastructure layer: chips-adjacent software, data infrastructure, and orchestration tools.

  • Application layer: select use-cases in specific industries with strong early adoption and defensible moats or access to proprietary data.

Diversification across fund managers, stages, and layers helps buffer against any one area overheating.

The tech is here to stay.

AI isn’t a new bubble - it’s the culmination of decades of progress in compute, data, and algorithms. The current boom is the build-out phase, not the endgame. Just as the internet’s early experiments paved the way for the giants that now shape our world, today’s investment wave is laying the groundwork for the next generation of platforms.

The Bottom Line

Yes, some valuations will fall. Some projects will fade.

But the long-term value creation ahead still looks enormous - and the real risk may be missing exposure altogether.

  • Stay wary of obvious hype pockets and single-theme bets.

  • Stay informed: separate category-level capex logic from company-level profitability.

If you’re interested in learning more or expressing your interest in our AI Access investment strategy, please reach out to IR@FifthEra.com.

Thank you for reading.

Tallulah Le Merle, AI Partner

About Fifth Era

We are entering a period of unprecedented innovation we call the Fifth Era, and every industry and business will be dramatically impacted. We focus on investing into these new innovations. Fifth Era specializes in investment strategies which construct portfolios of hard-to-access funds and direct investments through our investment strategies - AI Access and Blockchain Coinvestors. Fifth Era's investment strategies are now in their 12th year and to date we have invested in a combined portfolio of 1,500+ companies and projects including 80+ unicorns. In the US we are a SEC registered investment advisor, in the UK a FCA appointed representative and our funds are registered in Switzerland. Visit us at www.FifthEra.com to learn more.

SEC Registration does not imply a certain level of skill or training.

“Focused on Innovation”

 
Matthew Le Merle