Artificial Intelligence, Real Bubble?

Public markets were soft over the past week, with the S&P500/Nasdaq100 -2%/-2%. YTD the S&P500/Nasdaq100 are now +13/+17%. In our view, weak performance was driven primarily by China tariff fears and weakness in certain regional banks (e.g. ZION) around credit concerns. (Source: Bloomberg)

The U.S. equity market today reflects at least two potential symptoms of AI-driven euphoria: narrow market leadership and high valuations. While the AI “revolution” is rooted in genuine technological breakthrough, valuations across the ecosystem—from semiconductors to cloud providers to LLM developers—already appear to discount expectations of a multi-year boom. In public markets, the rally remains highly concentrated among a handful of companies, notably the “Mag 7,” which are now ~1/3 of total US equity market capitalization vs. ~1/5 pre-AI (i.e. pre-2023, roughly when ChatGPT was released). (Bloomberg)

And valuations are not cheap either. Currently, the “Mag 7” trades at a 26x 2026E P/E, a 23% premium to the broader market. YTD, the S&P Technology Index is +22% vs. +13% for the S&P500. In private markets, leadership has been similarly concentrated, most notably with LLM providers OpenAI, Anthropic, and x.AI, which are +224% YTD. (Bloomberg; NPM)

Moreover, the interconnections among these entities are unusually tight LLM developers like OpenAI depend on hyperscalers such as MSFT for compute. Cloud providers depend on NVDA’s GPUs and TSMC’s foundry capacity. And every CRWV data center expansion is constrained by local power availability and regulatory permitting. This means that shocks—whether a GPU shortage, foundry delay, or grid constraint—can ripple through the system almost instantly. Furthermore, financial linkages reinforce the technical ones: strategic cross-investments (e.g., NVIDIA’s stakes in data centers) and secondary transactions at escalating valuations create feedback loops of optimism and liquidity. (Bloomberg; NPM)

The “no bubble” argument is that growth for many AI companies appears to actually be accelerating. For instance, when the media reported OpenAI’s financial projections on 4/25, many investors were skeptical. However, the company came back on 9/25 and actually raised its revenue forecast. In addition, infrastructure providers like TSMC have guided to durable, structural demand for hardware and software. What is undeniable, however, is a high concentration of performance in a small number of names raises potential for market swings, whether private or public. (Bloomberg; NPM; The Information)

BIGGEST MOVERS AND TOPICAL NAMES

Based on our proprietary Tape D® data, the best performers of the large-cap names in the private market thus far in 2025 have been Anthropic (+315% estimated share price performance), Crusoe (+245%), and OpenAI (+180%). (Source: NPM)

RECENT EVENTS

• OpenAI reported an agreement with Broadcom to co-develop 10GW of custom AI chips over 4 years. (10/13’ StrictlyVC)
• Credit fraud fears rise amidst worries around regional banks. (10/16; Bloomberg)
• TSMC says conviction on AI megatrend is “strengthening.” (10/16; Bloomberg)
• The DOJ seized $15bn of cryptocurrency in Cambodia. (10/14; CNBC)

NOTABLE CAPITAL RAISES

• Healthcare ring company Oura raised $900mm at an $11bn valuation. (10/14; The Information)
• Code assistant Poolside is raising $2bn at a $14bn valuation. (10/15; StrictlyVC)

NOTABLE EXITS

• Goldman Sachs is acquiring SF-based VC Industry Ventures in a deal valued at up to $965mm. (10/15; StrictlyVC)
• European data center provider Nscale is considering a 2026 IPO post-signing a $14bn GPU supply agreement with MSFT (10/14; StrictlyVC)