AI Bubble Indicators: Reddit vs. Market Data on Valuation Metrics

Reddit users identified several key bubble indicators:

• S&P 500 P/E above 30
  flagged as a red flag by FrankDrebinOnReddit
• Shiller CAPE near all-time highs
  cited by multiple users
• Comprehensive indicator list
  from Dangerous-Lawyer-636 including: Berkshire cash levels, percentage of stocks with P/S ratios above 10, market cap to GDP ratio, Shiller PE, leveraged ETF AUM, and brokerage leverage
• Contrarian sentiment indicator
  : TechTuna1200 suggests that when many ask “are we in a bubble?”, we likely are not
• Circular investment concerns
  : Users questioned how much circular investment between hardware and software firms inflates valuations
• TSMC capacity constraints
  noted as potential limiting factor for AI growth

Institutional data reveals multiple bubble indicators across the AI sector:

• AI companies command dramatically higher P/E ratios than broader market averages
• S&P 500 Information Technology sector showing elevated valuation metrics
• 54% of institutional investors believe AI stocks are in a bubble according to Bank of America’s October 2025 survey

• Magnificent 7 projected to spend $380 billion on AI capex in 2025 (90% increase from 2024’s $200 billion)
• Meta raised guidance to $70-72 billion, Amazon projected $125 billion, Alphabet increased to $91-93 billion
• The four AI superpowers (Alphabet, Amazon, Meta, Microsoft) account for majority of this spending

• NVIDIA announced $100 billion investment in OpenAI, creating circular financing where chipmaker funds its major customer
• AMD signed strategic deal with OpenAI to supply 6 gigawatts of Instinct GPUs, potentially worth $90 billion by 2030
• Bernstein analysts specifically cited “circular concerns” about NVIDIA investing in startups that buy its GPUs

• Venture capital funding heavily concentrated with $192.7B invested in AI startups in 2025
• Significant sell-offs in major AI stocks during early November 2025
• Bank of England and other financial authorities issuing valuation warnings

Reddit users and institutional research converge on several key bubble indicators, though with different emphasis. Reddit correctly identified the circular investment concern that institutional analysts later quantified - the self-reinforcing loop where hardware providers fund software companies that then purchase their chips. However, Reddit’s focus on traditional metrics like P/E ratios and Shiller CAPE may understate the unique dynamics of AI-driven growth.

The research reveals that circular investments are more substantial than Reddit speculated, with NVIDIA’s $100B OpenAI investment and AMD’s $90B GPU deal representing significant self-reinforcing capital flows. While some Reddit users dismissed circular investment concerns as “nonsense,” institutional analysts at Bernstein and other firms view these arrangements as legitimate bubble risks.

The magnitude of Mag7 capex growth ($380B vs $200B) exceeds what most Reddit users anticipated, suggesting the bubble dynamics may be more pronounced than discussed on the platform.

• Circular investment unwind
  : If major AI companies reduce circular financing, valuations could face sharp corrections
• Capex sustainability
  : 90% YoY increase in AI spending may not be maintainable, especially if TSMC capacity constraints materialize
• Regulatory scrutiny
  : Growing institutional skepticism (54% seeing bubble) could trigger regulatory intervention
• Valuation compression
  : AI stocks trading at extreme premiums to market averages face significant downside

• Capacity constraint beneficiaries
  : Companies positioned to benefit from TSMC bottlenecks may see pricing power
• Non-circular AI firms
  : Companies with genuine customer demand outside circular investment loops may be undervalued
• Capex suppliers
  : Hardware and infrastructure providers may continue benefiting from spending surge, even if bubble concerns grow
• Contrarian positioning
  : As TechTuna1200 noted, widespread bubble talk sometimes indicates market bottom rather than top