Is AI in a Bubble? Early Mania, But Not the Endgame (Yet)

Atlas Analytics’ Weekly Subscriber Update

Source: The Economist

As we wrote last week, market timing — long considered impossible — is now quantitatively achievable. Over the past year, Atlas Analytics generated a 54% return using ROY, our real-time GDP forecasting model that consistently outperforms the Federal Reserve’s own projections.

But the ability to forecast turning points does not mean that every period of elevated valuations represents a bubble ready to burst. In fact, distinguishing between early-stage mania, late-stage euphoria, and a true bubble endgame is one of the most difficult judgment calls in finance.

As The Economist recently put it:

“Even for the very best investors, identifying a bubble is easier than judging when it will burst.”

So, are we in an AI bubble?

We’re likely in the early innings of one — but that is very different from being at the end. Valuations are stretched, excitement is building, and narrative momentum is compounding, but the fundamental underpinnings of the economy remain strong. And as long as fundamentals anchor prices, bubbles can persist — sometimes for years.

That’s the paradox of early mania:
It looks like a bubble, it feels like a bubble, but it isn’t the bursting point.

So why hasn’t the bubble burst? The answer lies in the fundamentals.