National Bank Financial - Wealth Management (NBFWM) is a division of National Bank Financial Inc. (NBF), as well as a trademark owned by National Bank of Canada (NBC) that is used under license by NBF. NBF is a member of the Canadian Investment Regulatory Organization (CIRO) and the Canadian Investor Protection Fund (CIPF), and is a wholly owned subsidiary of NBC, a public company listed on the Toronto Stock Exchange (TSX: NA). The information contained herein has been prepared by Eric Van Enk, Portfolio Manager and Wealth Advisor at NBF. I have prepared this article to the best of my judgment and professional experience to give you my thoughts on various financial aspects and considerations. The opinions expressed represent solely my informed opinions and may not reflect the views of NBF. The particulars contained herein were obtained from sources we believe to be reliable but are not guaranteed by us and may be incomplete. The opinions expressed are based upon our analysis and interpretation of these particulars and are not to be construed as a solicitation or offer to buy or sell the securities mentioned herein. The opinions expressed do not necessarily reflect those of NBF.
Artificial Intelligence Bubble?
November 22, 2025, Insight from Eric Van Enk, Wealth Advisor & Associate Portfolio Manager
It’s all about earnings | Kunz Financial Group
We receive a lot of questions about Artificial Intelligence (AI) focused companies. Specifically, whether the U.S. stock market is in an AI bubble akin to what occurred in the late 1990’s with the dotcom bubble. Our answer is nuanced as one never knows with 100% certainty if they are in an investment bubble until after the bubble has burst. There are significant parallels between the current environment for U.S. technology stocks and the last wave of massive investment in technology associated with the emergence of the internet in the late 1990’s. Substantial technological breakthroughs such as the internet and AI positively impact the economy by increasing labour productivity and corporate earnings. If we use the emergence of the internet as our case study, we see it took approximately five years for the impact of increased productivity to be fully realized by the economy. Annual productivity growth has averaged 1.7% over the past decade in the United States. If we extrapolate the lag in productivity growth from the internet to the current AI environment, we believe it’s reasonable to foresee U.S. productivity growth above 2.0% for the next decade which positively impacts the economy through lower inflation and higher earnings.
Stock markets are forward-looking, meaning they constantly discount available information and react quickly to changes in earnings and productivity estimates. The current debate as to whether the U.S. stock market is in an AI-driven investment bubble is framed on one side by those who point to relatively high valuation multiples (like we saw in the late 1990’s) and those on the other side who highlight the strong and increasing earnings growth of leading AI companies. There is no debate that the sharp rise in U.S. stock market valuations has been driven by optimism surrounding the impact AI will have on the economy. Ultimately, the winner of this debate will be decided by the impact of AI on earnings growth which won’t be known for some time due to the lagged impact of technological innovation on productivity as described above.
Source: National Bank Financial
I found this week’s chart interesting because it shows that U.S. stock valuations (price-to earnings ratios) peaked about a year before spending on IT, software, and R&D peaked during the dotcom bubble. One of my favorite expressions is, ‘history may not repeat, but it often rhymes’. While parallels between the dotcom bubble and the current environment for U.S. technology stocks exist, there are notable differences. The most significant difference is the strong earnings growth of the largest companies driving AI innovation. Leading AI companies have been able to justify their relatively high valuation multiples by growing earnings at a higher rate than the overall market. The dotcom bubble burst when it became evident that most companies with high valuation multiples couldn’t grow their earnings in the year 2000. The chart displays the power of the stock market as a leading indicator as it predicted the peak in technology spending roughly a year before it happened. Investors reached a point where they were no longer willing to pay high valuation multiples for companies that were expected to grow earnings in the future when it became apparent that earnings growth wasn’t going to occur. Again, this is where the current market is very different than the dotcom era as leading AI companies continue to deliver strong earnings growth. The recent messaging from third quarter reporting and guidance is that more investment and AI innovation are expected for 2026 and beyond.
Eric Van Enk, Wealth Advisor & Associate Portfolio Manager
National Bank Financial – Wealth Management
Medicine Hat, AB
