One of the dominant themes in capital markets over the past few years has been the rise of artificial intelligence and the companies benefiting from this transformative technology.
As these firms continue to outperform major indices, questions about lofty valuations, the sustainability of rapid growth, and whether we are witnessing the formation of an AI bubble have become central to market discussions. Strong earnings from leading technology companies challenge the bubble narrative, yet history reminds us that bubbles are rarely recognized until after they burst.
This debate brings me back to last fall, when our team at Schneider Downs Wealth Management studied financial bubbles through the lens of William Quinn and John D. Turner’s book, Boom and Bust – A Global History of Financial Bubbles. Their framework likens bubbles to fires: just as fire requires oxygen, fuel, and heat, bubbles require three elements—marketability, money/credit, and speculation.
- Marketability refers to how easily an asset can be bought and sold.
- Money/Credit is often fueled by low interest rates and loose credit conditions.
- Speculation occurs when investors purchase assets primarily to sell them later at a profit, with little regard for intrinsic value.
While bubbles frequently end in banking or economic crises, they can also generate positive outcomes. They can accelerate innovation, encourage entrepreneurship, and channel capital into projects that might otherwise have struggled to secure funding. Many transformative technologies—from railways and bicycles to automobiles, fiber optics, and the internet—were propelled forward during bubble periods.
Since 1990, major bubbles have emerged roughly every six years, including the dot-com bubble, the housing bubble, and the crypto boom. Globalization of capital and deregulation of banking have fueled this cycle, extending credit and increasing debt to unprecedented levels. Deregulation has also made trading cheaper and easier, enhancing the marketability of financial assets and amplifying speculative activity.
Historically, bubbles are often sparked by technological breakthroughs or government policy shifts—patterns that resonate with today’s AI-driven environment. Whether today’s surge in AI represents the next great bubble or a lasting technological revolution remains uncertain. What is clear is that the bubble triangle—marketability, money/credit, and speculation—offers a powerful lens for evaluating the risks and opportunities shaping our financial future.
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Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.
