What Is a Stock Market Bubble?

By Jeremy Bowman – Updated Jul 5, 2025 at 5:12 PM

Key Points

Stock market bubbles occur when asset prices inflate without solid business fundamentals.
Speculative buying and euphoria among investors are typical drivers of such bubbles.
Identifying and avoiding overvalued stocks is crucial in protecting investment portfolios.

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An infographic showing the five stages of a stock market bubble on a chart: displacement, boom, euphoria, peak and collapse. — Image source: The Motley Fool

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The dot-com bubble of the late 1990s may be the most recent famous example of a stock market bubble. Tech stocks surged, fueled by high expectations for a new internet economy. When those expectations were not realized, almost all of the tech stocks that had gained value during the boom years plunged or the underlying companies went out of business entirely. Arguably, the collapse in high-growth tech stocks from 2021 to early 2022 was also evidence of a bubble.

Not every surge in stock prices is a sign of a bubble, however. Sometimes, large stock gains are justified by the companies' performances. For example, Amazon (AMZN -1.84%) stock has jumped in price by 1,760% in the past decade, but the company's earnings have increased even more during that time, and its competitive advantages have strengthened.

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Market Sentiment

Market sentiment is the overall attitude of investors toward a certain security or financial market. Learn about the indicators to measure market sentiment and why it's important.

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Often the clearest sign of a stock market bubble is market sentiment, or how investors feel about the stock market. J.P. Morgan famously sold his stock holdings ahead of the Great Depression after a shoeshine boy asked him how he could buy stocks. Similarly, there were signs on social media platforms during much of the pandemic boom of euphoric sentiment in the market.

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About the Author

Jeremy Bowman has been a contributing Motley Fool stock market analyst, covering technology, consumer goods, and macroeconomic trends since 2011. Before The Motley Fool, Jeremy was a newspaper reporter, restaurant manager, and English teacher abroad. He holds a bachelor’s degree in English from Colorado College and a master’s degree in business administration from American University. One of his Motley Fool headlines was briefly featured on Late Night with Stephen Colbert.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon and Target. The Motley Fool has positions in and recommends Alphabet, Amazon, Bitcoin, Peloton Interactive, Target, and Zoom Communications. The Motley Fool recommends Wayfair. The Motley Fool has a disclosure policy.