Not a 'bubble,' but maybe an 'air pocket': Wall Street says it's time to reset the AI narrative
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Allie Canal · Senior Reporter
Updated Wed, December 3, 2025 at 4:51 PM GMT 4 min read
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Two of Wall Street’s biggest firms say the AI boom is far from a speculative mania.
Instead, BlackRock and Bank of America say this cycle is being driven by real corporate investment, earnings, and productivity gains — not the kind of irrational exuberance that defined the dot-com bubble of the early 2000s.
"We don't think the bubble framing is that useful at this stage for investors," Jean Boivin, head of the BlackRock Investment Institute, said at a media roundtable on Tuesday.
“We want to avoid just putting everything on a backward-looking kind of metric or assessment," he continued, noting it's "incomplete" to describe the AI boom as a bubble given the build-out continues to unfold at an “unprecedented” scale and pace.
Boivin also pointed to the healthy level of skepticism in markets today.
“There is so much talk about the potential of the bubble … people are conscious of the risk,” he said. “It’s when there’s no discussion of that that we should be more worried.”
BlackRock argues the spending boom in AI is so large that it has become the macro story itself, saying the scale of corporate investment could push US GDP growth consistently above the 2% trend that has dominated for decades.
“The capital spending ambitions tied to the AI buildout are so large that the micro is macro,” the firm wrote in its outlook, estimating corporate spending plans between $5 trillion and $8 trillion globally through 2030, most of it in the US.
“The challenge for investors: reconciling huge capital spending plans with the potential AI revenues,” BlackRock added. “Will their orders of magnitude match?”
Two of Wall Street’s biggest firms, BlackRock and Bank of America, say the AI boom isn’t a bubble. (Photo by Johannes EISELE / AFP) (Photo by JOHANNES EISELE/AFP via Getty Images) · JOHANNES EISELE via Getty Images
The firm also flagged the physical limits of the build-out, from compute to the grid, noting AI data centers could consume 15% to 20% of US electricity by the end of the decade. That makes the build-out both transformative and vulnerable: “This frontloading of spending is necessary to realize eventual gains," BlackRock wrote.
BlackRock said those pressures are part of a structural shift, arguing AI is helping propel stocks to record highs and that it “remains pro-risk and sees the AI theme still the main driver of US equities.”
From bubble to 'air pocket'
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Bank of America struck a similar tone, but with a more explicit warning about how the next phase of the boom could play out.
“Is this 2000? Are we in a bubble? No,” Savita Subramanian, head of US equity & quantitative strategy, said during BofA's outlook call on Tuesday. "Will AI continue unfettered in leadership? Also no."
Subramanian views the current environment as more of a pause than the start of a collapse, describing a potential “air pocket” where capital spending outpaces revenue growth. That lag between investment and monetization, especially around power and infrastructure bottlenecks, could spook investors in the near term.
Part of that risk has already shown up on balance sheets. Hyperscaler capital expenditures have risen to 60% of operating cash flow over the past year, up from 30% a decade ago, according to BofA, but still far below the 140% peak in the dot-com era.
The firm also forecasts hyperscaler spending from companies like Microsoft (MSFT), Amazon (AMZN), Google (GOOG, GOOGL), Meta (META), and Oracle (ORCL) reaching $400 billion in 2025 and $510 billion in 2026 as the build-out continues.
But that near-term caution doesn’t mean the comparison to 2000 holds. Subramanian acknowledged that breadth and lofty multiples do “rhyme with 2000,” but pointed to several key differences this time around: Stock allocations are much lower than they were during the dot-com era, earnings growth has supported higher valuations, IPOs are smaller, and speculation in unprofitable companies is less extreme than the late 1990s.
Those differences underpin BofA’s bullish long-term view. The firm sees the S&P 500 (^GSPC) ending 2026 at 7,100, a target that sits on the conservative end of Wall Street’s forecast spectrum, well below firmer calls such as RBC’s 7,750 and Deutsche Bank’s 8,000.
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Allie Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie\canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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