After years of quiet, solid gains, Nvidia (NVDA +1.61%) stock has had a breathless ascent over the three years, climbing nearly 1,400%. It flew past Apple and Microsoft to become the most valuable company in the world, reaching a market value of $4 trillion in July, and it's now in a league of its own as the first $5 trillion stock.
The combined total of Amazon, Meta Platforms, and Berkshire Hathaway is about $5 trillion, and 9 out of the top 10 companies on the stock market by market capitalization are artificial intelligence (AI) companies. Not only are they the most valuable companies, they're the most valuable companies by far, accounting for about a third of the S&P 500, which is a weighted index.
When investors talk about "the market," or when "the market" moves, this is increasingly connected to just a few stocks, rather than the remaining 490 or so stocks in the index. Some analysts are seeing the buildup of a bubble, similar to the dot-com bubble in 2000 that burst -- with far-reaching results that put some companies out of business and put the S&P 500 into decline for three consecutive years, the only time that has happened since the 1940s.
So, with just a few stocks accounting for so much of the market's total value, is the AI bubble about to burst?
Image source: Getty Images.
Bursting the bubble
Spoiler: No one knows. While there are indications that this could be a bubble, AI has many practical applications, and the results are strong and steady. People are using AI for all kinds of things, making life easier and processes faster. AI can spot grammatical errors in writing and improve style, it can produce real-looking images that save time and money, and it can analyze all kinds of behaviors to detect trends and help businesses and individuals make better decisions.
Amazon, Meta, Alphabet, and Microsoft all say demand is high and they're constrained by capacity. They're investing ever-increasing amounts of money in their AI programs to meet soaring demand. This is how they're guiding for capex spending this year:
| Metric | Amazon | Meta | Alphabet |
|---|---|---|---|
| Capex spending (2025) | $125 billion | $117 billion |
$92 billion |
Data source: Amazon, Meta, Alphabet, and Microsoft quarterly reports.
Microsoft reported its fiscal 2026's first quarter with $34.9 billion in spending and didn't give full-year guidance. All of these companies said this past week in their quarterly earnings updates that they will increase spending in 2026.
Nvidia is one of the main beneficiaries here, since it makes the most powerful chips and AI tools, but it's also susceptible to the bubble bursting and knocking it down.
How should investors prepare?
It would be a shame for the individual investor to lose out on gains from companies like Nvidia because they're worried about bursting bubbles. I get it; Nvidia at $5 trillion doesn't just look formidable, it could look fearsome.
On the other hadn, risk-averse investors don't even need to hear that investing in these kinds of values right now might not be the best idea. They're already staying away. And anyone who thinks they might need to take their winnings in the near future are probably best off selling and investing in safer stocks.
But for investors who have some appetite for risk and a long-term horizon, it certainly makes sense to choose some great AI stocks to have in a growth-oriented portfolio. What these investors need to remember is the market equivalent of the three most important words in real estate: diversify, diversify, diversify.
NASDAQ: NVDA
Key Data Points
It's great to invest in Nvidia today; I recommend it. But you need to make sure that your portfolio is balanced across risk assignments, categories, classes, and industries. If all you own is AI stocks, that's not a very secure portfolio. If you buy Nvidia, think twice about investing in Amazon, Meta, or other high-value AI stocks.
Another way to invest in the AI trend is by choosing an AI-focused exchange-traded fund (ETF) that gives you exposure to many AI stocks in addition to other single stocks and ETFs.
If you've already successfully invested in Nvidia, as hard as it might be, you might want to reduce your position to minimize risk. Unlike selling entirely, you'll still get access to future gains. But you might want to spread out your position among a larger and more diverse group of stocks.
The bottom line is that there may or may not be an AI bubble, and safe investing involves diversification, even for growth investors.
