Since early November, fears of overvaluation have dragged on tech stocks. As major investment banks warned of possible corrections, the tech-heavy Nasdaq Composite (^IXIC 0.93%) has been volatile while also relatively flat since October 2025. In the three months since, it's gone from 23,348 to 23,461 -- a gain of less than half a percent.
Meanwhile, Microsoft's 10% share price plunge after the release if its Jan. 28 earnings report, despite growing profits by 60% year over year, shows how high expectations for tech companies have become in the age of artificial intelligence (AI).
NASDAQINDEX: ^IXIC
Key Data Points
For anyone old enough to remember the dot-com collapse, the nervousness is understandable. In March 2000, the Nasdaq began what became a years-long sell-off that fell as much as 77%, with then tech darlings like Cisco Systems (CSCO +0.58%), Intel, and Oracle collapsing by even more.
When a stock falls by 80%, it doesn't need an 80% rebound to break even; it needs a 400% gain. Buying on the eve of a bubble's collapse can wreck investors -- at least those without risk management strategies such as stop-loss orders in place -- so it's understandable how, with the tech rally now in its fourth year, overvaluation fears are front and center.
Image source: Getty Images.
The fear is acute enough that Jensen Huang, the CEO of semiconductor giant Nvidia (NVDA 1.56%), the world's largest company by market capitalization and poster child for the $15.7 trillion AI revolution, addressed rumors of a bubble in Nvidia's most recent earnings presentation in mid-November.
Nvidia's CEO: "We see something very different"
According to Huang, the technological principle Moore's Law, the observation that microchips and semiconductors become twice as powerful every 18 months or so, has been shattered by AI. In this post-Moore's law era, Huang said that the world is going through three massive platform shifts simultaneously.
First, there's the transition from CPU (central processing unit) computing to GPU (graphics-processing units) computing. Huang noted that the world's massive investments in non-AI software, once running exclusively on CPUs, are now transitioning to GPUs, which are better-suited for AI. In cloud computing alone, this shift will put a multi-hundred-billion-dollar tailwind behind the AI Revolution.
Secondly, Huang pointed to a "tipping point" in which AI is transforming existing applications while creating completely new ones. For instance, generative AI is replacing classical machine learning in search rankings, ad targeting, click-through predictions, and content moderation.
As an example, he pointed to Meta's 5% increase in ad conversions on Instagram and 3% bump in conversions on Facebook thanks to its AI-based JEM marketing tool. The ongoing transition, he said, would bring "substantial revenue gains for hyperscalers."
Finally, he invoked the rise of Agentic AI systems. From AI legal assistants to AI chauffeurs that are all capable of reasoning and planning, these systems mark "the next frontier in computing." Sure enough, Huang followed up in January by unveiling Nvidia's driverless car technology, calling it a "ChatGPT moment" for physical AI.
NASDAQ: NVDA
Key Data Points
A valuation check
While Huang laid out AI's potential to continue disrupting multi-trillion-dollar industries, he said nothing about valuations, which are essential to assessing bubble risks.
Today, the Nasdaq-100's average price-to-earnings (P/E) ratio stands at 32.9. That's actually down from its 33.4 average P/E ratio a year ago. This gentle downward drift isn't what you would expect in bubble territory.
For context, in March 2000, the Nasdaq 100 had an average P/E ratio of 60. Cisco, the largest company in the world back in 1999, had a P/E ratio as high as 472 at the time, compared to Nvidia's P/E ratio of 47.7 today.
There's another difference between today's tech rally and the dot-com mania. Back then, just 14% of dot-com companies were profitable. Today, the tech giants leading the AI revolution are fantastically profitable and growing more so. Last quarter, Nvidia grew profits by 65% year over year, while Microsoft's profits rose by 60%, as mentioned. Last quarter, Alphabet's revenue topped $100 billion for the first quarter ever, while profits rose by 33% despite a $3.45 billion antitrust fine dragging on net income.
While anything can happen, valuations don't support tech bubble fears today. The market's three-month performance lull allows these fast-growing companies to grow into their valuations, making them more enticing as investments. This moment may represent a buying opportunity in a rally that endures for years.
