AI Bubble Still Has Room, Despite Correction Risks

JAKARTA — AI bubble still has room to run, even as many analysts wave warning signs over pricier tech valuations and swelling corporate debt. Investors have not stepped back. Money is still flowing in.

In a report cited by The Economist, the U.S. stock market remains supported by a handful of tech giants, while fears of a major correction are being drowned out by fear of missing the rally. That brings back a classic question: when does euphoria turn into a crash?

Why the AI bubble has not burst yet

The problem is not just that stock prices have risen. What matters more is that the gains are now backed by huge profits at the biggest companies, deep cash reserves, and global investors still looking for a place to park money. That mix makes life difficult for the people sounding the alarm. They may be right about the risk, but they often arrive too early.

History shows this pattern again and again. When valuations climb far above what normal earnings can support, economists and analysts usually start warning about a bubble. Then the market keeps going. Their warnings can sound like shouting in a crowded room. Years pass, and the rally rolls on.

Now the concern is again centered on the S&P 500 and Nasdaq, the two main gauges of the U.S. market that are closely tied to tech stocks. The impact does not stop on Wall Street. Major financial crises in the past century have often spread abroad through U.S. banks, U.S. investors, or the U.S. financial system itself. Indonesia is not immune. When global funds panic, local stocks and the rupiah often feel the tremor.

The Magnificent Seven are at the center

At the center of the story are seven big names: Amazon, Alphabet, Nvidia, Meta, Microsoft, Apple, and Tesla. They are often called the “Magnificent Seven.” These companies now carry extraordinary weight in U.S. stock indexes. According to the report, the 10 largest companies in the S&P 500 now account for about 40 percent of the index’s market value. That is well above the 27 percent peak seen during the 1999-2000 tech bubble.

That number makes the market look fragile. When a small group of companies controls such a large share, one setback can drag down a broad index. Yet oddly enough, that is also when investors find it hardest to leave. Prices keep rising. Profits are still strong. And many believe artificial intelligence will reshape nearly every business, from advertising to software.

But not every wave of optimism ends in profit. Jeremy Grantham, a veteran investor long known for calling asset bubbles, sees a familiar pattern: people pour huge sums into a new technology, then realize the technology looks more like a utility, such as electricity or railroads, than a machine that prints endless money. The value is real. The gains may not match the original hype.

Debt, profits, and fear of missing out

Pressure is also building on the financing side. Some tech companies are starting to borrow to fund AI investment. SpaceX, Elon Musk’s company, was even cited as taking a bold step with a $25 billion bond sale not long after raising $86 billion from a record New York transaction. For Ludovic Subran, chief investment officer at Allianz, that kind of move is a sign the market is entering “bubble territory.”

Subran sees the warning signs clearly: when companies that already have plenty of cash still add debt to chase AI growth, the market starts to feel overheated. Dhaval Joshi, global strategist at BCA Research, calls it the “madness of crowds.” In his view, markets work best when opinions are still mixed. Once investors all think alike, balance disappears. Everyone wants in. Almost nobody wants to be left behind.

That fear of missing out is one reason a correction has been so hard to trigger early. At the start of the year, investor appetite cooled when some major companies began borrowing to spend on AI. Then geopolitical tensions rattled markets. But the market quickly recovered. Once Donald Trump signaled talks with Iran in late March, the S&P 500 jumped again. The message was clear: as long as there is a reason to hope, investors prefer to stay put.

Why the market can still rise further

Even as bubble risks are discussed more often, The Economist said the AI bubble may still have fuel left. The reason is simple. The biggest companies are still posting strong profits. The U.S. government, the report said, also has a strong interest in keeping financial markets calm. At the same time, the world is still flush with savings looking for returns. Money like that rarely sits still. It keeps searching for a home.

At this point, the stock market is not moving on logic alone. It is being driven by psychology, policy, and a web of interests. Big investors do not want to sell too early because they fear missing more upside. Companies do not want to slow down because rivals are spending heavily. Governments do not like watching indexes fall. Everyone has a reason to delay the problem.

Market watchers also agree on one thing: no one has a crystal ball that can pinpoint the exact trigger for a bubble burst. It could be a recession. It could be an aggressive rate hike. It could be a geopolitical shock, or news that AI spending is not producing revenue fast enough. For now, though, that trigger has not arrived.

What is visible instead is the opposite. The market keeps trying to look away. Investors keep adding positions. Companies keep borrowing to stay in the AI race. And above it all, tech valuations keep climbing. A major correction may not be close yet. But the end point already feels close enough. The only missing piece is timing.

If there is one lesson from this cycle, it is simple: euphoria never lasts forever. The real question is how long the market can keep postponing the day of reckoning.

Quick summary

1. The AI bubble has not burst because big-company profits remain strong and investors still do not want to exit.

2. Market concentration in the seven tech giants is making U.S. indexes more vulnerable.

3. A correction could come from recession, higher rates, or AI spending that fails to produce matching returns.

Short FAQ

What is the AI bubble? It is the condition where tech company values rise much faster than the real profit or revenue support behind AI businesses.

Why does this matter for readers in Indonesia? Because shocks in the U.S. market often spill into global markets, including capital flows into emerging economies.

Will a correction definitely happen? No one can say when, but many analysts believe the risk has already risen.

What should investors watch next? Earnings, tech company debt, and the direction of U.S. interest-rate policy.