Research Pinpoints an AI Bubble in the Stock Market
A recent study applies state-of-the-art bubble-detection tools to the recent AI stock surge—and finds clear signs of speculative excess across almost every major tech giant.
The boom in artificial intelligence (AI) has reshaped the stock market—especially the performance of the Nasdaq and the seven companies now known as the “Magnificent Seven”: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. These firms dominate investor attention, account for trillions in market value, and have seen dramatic price surges driven by optimism around AI technologies. But are these gains rooted in fundamentals, or has speculation taken over?
A new study by Rerotlhe Basele, Peter Phillips and Shuping Shi investigates this question using advanced econometric tools designed to detect financial bubbles in real time. These techniques look for “explosive” price behavior—periods when prices rise faster than can be justified by dividends, earnings, or broad market trends.
The authors analyze monthly data from 2010 to January 2025, with special attention to two key windows: the pre-2022 AI run-up and the sharp rally beginning in late 2022. Their findings are striking. In the Nasdaq as a whole, they identify a clear speculative bubble from 2017 through the end of 2021—well before the market’s downturn in 2022—and again from December 2022 through January 2025, meaning the recovery is also exhibiting bubble-like features.
“The findings reveal the presence of speculative bubbles in the Nasdaq stock market and across all Mag-7 stocks. Nvidia and Microsoft experience the longest speculative periods over January 2017 – December 2021, while Nvidia and Tesla show the fastest rates of explosive behavior. Speculative bubbles persist in the market and in six of the seven stocks (excluding Apple) from December 2022 to January 2025.”
At the individual-company level, all seven firms show signs of speculative excess in at least one period. Nvidia and Microsoft display the longest sustained bubbles, while Nvidia and Tesla experience the most rapid and explosive price accelerations. Using models that strip away broader market effects, the authors show that these surges cannot be fully explained by fundamentals or industry trends. Apple is the only member of the group that does not show evidence of a bubble in the most recent period.
To better understand the severity of these dynamics, the researchers also classify whether each stock behaves like a mildly explosive process (strong bubble), a near-unit-root process (persistent but less extreme), or something in between. Nvidia and Tesla stand out as the clearest cases of speculative explosiveness before 2022, while after 2022 most assets—including the Nasdaq itself—show patterns consistent with continued exuberance.
Overall, the study concludes that the AI era has brought not only technological transformation but also unmistakable speculative excess in U.S. equity markets.