AI boom carries familiar bubble characteristics

For Iuorio, the speed of the rally is an immediate warning sign.

“When you see a stock like Micron Technology (NASDAQ:MU) being up 300 percent in eight weeks’ time, you have to know that something’s up,” he said, agreeing that the market is in a bubble.

Giustra pointed to the Buffett Indicator, which compares total stock market capitalization with gross domestic product, as another indication of excessive valuations. The measure has reached approximately 240 percent, well above the 150 percent level recorded at the height of the dot-com bubble.

Although today’s leading technology companies generate substantial earnings, Giustra argued that this does not eliminate the risks associated with excessive spending and speculation.

“There will be a reckoning, and some of these companies will get destroyed,” he said, warning that when the bubble bursts, the broader market will also suffer.

The panelists acknowledged that AI could prove as transformative as previous technological breakthroughs, including railroads, automobiles, aviation and the internet. However, transformative technologies have not necessarily translated into successful investments at every stage of their development.

Lu recalled that even investors who identified Amazon (NASDAQ:AMZN) as one of the strongest companies during the dot-com era would have experienced a loss of approximately 90 percent before its eventual recovery.

Williams, who writes the “Things That Make You Go Hmmm…” newsletter, used the analogy of an approaching hurricane to describe the disconnect between recognizing market danger and taking precautions.

“If we told you a hurricane was heading to New Orleans, everybody would take precautions,” he said. “The interesting thing about stock market bubbles is people don’t really think about what can go wrong. They’re still thinking about making money.” Williams argued that investors often assume they will be able to exit their positions just before a market collapse, despite the speed at which financial conditions can deteriorate.

“Far too few people think about … what’s my exit strategy here? What do I need to be worried about?” he said.

Investors weigh opportunity against capital preservation

While the panelists agreed the market is overextended, their approaches to navigating the cycle are different.

Giustra, who has been involved in financial markets since 1978, said he prefers to remain on the sidelines rather than chase valuations he considers historically excessive.

He exited his US equity positions before the COVID-19 pandemic, explaining that his decision was based on valuations rather than an expectation of an impending crisis. He acknowledged that the move meant missing substantial market gains, but said preserving existing wealth has become more important than pursuing additional returns.

“At my age, I was going to preserve what I have instead of betting the farm,” he said. Giustra distinguishes between the capital he puts at risk through his business activities and his personal investment portfolio — while he continues to invest in high-risk ventures, he is considerably more protective of the wealth he has already accumulated.

For Williams, the distinction between uncertainty and risk is central to investment decisions.

“Uncertainty is the water we swim. We live in uncertainty every single day,” he said. “The risks you take are the decisions you make in trying to deal with that uncertainty.”

Rather than attempting to eliminate uncertainty, investors should assess whether the risks they are taking are appropriate for their financial objectives and circumstances.

Williams also emphasized the importance of holding capital back for opportunities that emerge after a market correction. He suggested that investors could eventually find attractive entry points in equities trading at significantly lower valuations, including companies offering dividend yields of 6 percent and trading at six times earnings.

Meanwhile, Iuorio argued that investors do not necessarily need to avoid the market entirely. However, they should reduce position sizes and take profits as valuations rise.

“If you’re not trimming, if you’re not sizing your positions so when it all comes crashing down you won’t be the one left in tears, then you’re being foolish right now,” he said.

Leverage and private credit emerge as warning signs

Beyond valuations, the panel identified leverage as one of the most important indicators to monitor for signs of a market breakdown. Lu highlighted AI infrastructure company CoreWeave (NASDAQ:CRWV), pointing to its debt-to-equity ratio of more than 10 and borrowing costs of approximately 15 percent.

He also raised concerns about financing structures that use NVIDIA (NASDAQ:NVDA) graphics processing units as collateral, despite the hardware’s relatively short depreciation cycle.

The structure raised comparisons with the financing practices that contributed to the 2008 global financial crisis.

Iuorio said he would avoid CoreWeave, describing its financial structure as concerning. However, he identified corporate earnings as a more immediate indicator of whether the AI trade is losing momentum.

He is watching for a scenario in which companies report strong earnings, but their share prices decline anyway — a potential sign that positive results are no longer enough to sustain investor enthusiasm.

NVIDIA will be particularly important because of its central position in the AI investment cycle.

“If NVIDIA posts fantastic earnings and still gets hit, to me it’ll be an indication that things are going,” Iuorio said.

Williams also warned that the market’s financing dynamics have changed considerably since the dot-com era. Retail investors now have a much greater influence on market activity, potentially extending speculative rallies even as more cautious institutional investors step aside.

He described the financing arrangements surrounding AI infrastructure companies as increasingly circular, with companies and investors relying on one another to sustain the same investment narrative.

Giustra identified corporate bonds as another important warning indicator, arguing that credit markets could signal financial stress before equities prices reflect the deterioration. He commented, “Watch the discounts on the corporate bonds because it will signal long before the share price will signal that something’s wrong.”

He also highlighted highly leveraged hedge funds as a potential source of instability, warning that one failure could trigger a broader chain reaction.

Williams, however, said private credit poses an even greater concern because of its limited transparency and the difficulty of assessing underlying risks.

Gold, bailouts and the social cost of another crisis

The panelists also considered how a market collapse could affect gold and the broader economy.

Williams cautioned that gold will not necessarily provide immediate protection during a liquidity crisis. Investors facing pressure to raise cash often sell assets across the board, including precious metals.

However, he expects gold to recover quickly as investors seek liquidity and policymakers respond to the crisis.

Giustra pointed to the 2008 financial crisis as an example. Gold fell from approximately US$1,000 per ounce to US$750 before climbing to around US$1,900 over the following two years. He argued that investors must consider how governments and central banks will respond to a downturn, particularly through monetary expansion. That response could have significant consequences if another financial crisis requires substantial government intervention.

Williams said the underlying problems facing the financial system are similar to those in 2008, but considerably larger. He expects policymakers to resort to money creation once again, although he believes the inflationary consequences could make the response less politically acceptable.

“The response will be the same, and it’ll be much more dangerous,” he said.

Giustra also warned the audience that governments could find ways to use private wealth to support the financial system during a crisis. He recommended holding physical gold as a means of preserving wealth outside the financial system, emphasizing the importance of knowing where it is stored.

The potential for another round of financial bailouts also raised questions about the social consequences of a market collapse. Lu noted that public frustration over the concentration of wealth is already on the rise. Another crisis followed by government support for financial institutions could deepen that resentment and contribute to social unrest.

For the panelists, the central message was that investors should not assume the current market cycle will continue indefinitely. The AI revolution may ultimately deliver significant economic benefits, but that does not mean every company or investor participating in the boom will emerge successfully.

As Giustra put it, “The louder they cheer, the more skeptical I get.”