AI is one of the fastest-growing markets in the world.

Over the past four years, investors have put trillions of dollars into the sector, significantly increasing the value of leading AI tech companies. For instance, OpenAI – the company behind ChatGPT – is now valued at $500 billion (£365 billion), CNBC reports.

This expansion has been driven by a strong belief in AI’s game-changing potential, from transforming business efficiency to unlocking entirely new revenue streams. Yet sceptics worry that inaccurate valuations and excessive enthusiasm are laying the foundations for an AI bubble.

With so much media noise, it can be difficult to judge how real this risk is, let alone understand what it could mean for your investments.

Read on to learn more about the potential for an AI bubble and how you could protect your portfolio from market volatility.

Sceptics believe there is overinvestment in AI

The AI sector has attracted record-breaking levels of investment. For example, the Guardian reports that businesses and governments have spent nearly $3 trillion on AI infrastructure alone.

This investment has been buoyed by extreme confidence in AI’s long-term potential and intense competition for technological leadership – the most significant investments have been made by industry pioneers such as Microsoft, Google, Amazon, and Meta, the BBC reports.

However, critics argue that investment levels may be unsustainable.

If AI companies fail to deliver returns quickly enough, sceptics fear that an AI bubble inflated with trillions of dollars in investor confidence will burst and cause significant harm to global markets.

AI could be another dotcom bubble in the making

Much of the concern about AI is rooted in comparisons with the dotcom bubble of the early 2000s.

Like AI today, the internet was a revolutionary tech product that attracted notable investment. Investors were driven by hype and “fear of missing out”, abandoning caution in pursuit of rapid gains. Consequently, many startups were more focused on securing funding rather than on developing profitable internet technology.

By 1999, 39% of all venture capital investments were going to internet companies. Similarly, according to the Bank of England, AI stocks accounted for roughly 44% of the S&P 500 market capitalisation in 2025.

Eventually, as companies failed to meet expectations and many collapsed without making a profit, the dotcom bubble burst, causing investors to lose an estimated $5 trillion. Some experts worry that AI is going in the same direction.

However, there are some indicators of a more positive market outcome for AI.

Investors are seeing profits, and market commentators urge cautious optimism

Despite the significant concern surrounding AI, data shows it’s already delivering tangible economic benefits.

For the first time, Alphabet – the owner of Google – earned $100 billion in revenue in a single quarter, CNBC reports. Likewise, Statista reported that Facebook and Instagram owner Meta saw a 22% increase in revenue in 2025 compared to the previous year.

The market conversation is also balanced rather than blindly optimistic.

Investment firm JP Morgan has named AI as one of the three core driving forces shaping the market in 2026; it is central to the next economic cycle, but there is a need for real earnings as AI hype begins to wane.

Meanwhile, research from Capital Economics stresses that regional variations are important and some areas of the world will be more successful at innovating and adopting AI technology, including the US, UK, and Singapore. Countries such as China are also rapidly expanding their ability to develop and leverage AI tech, while smaller economies may struggle to keep up.

Despite this, Capital Economics states that: “AI is not the only influence on productivity growth. But among developed markets, it will be the biggest one. We continue to expect productivity growth in the major developed economies to rise.”

Protect your portfolio through diversification and long-term investing

While there is healthy market scepticism towards AI, current trends don’t give an indication that the bubble is likely to burst anytime soon.

That said, nobody can predict the future, and it is important to be prepared for market volatility.

There are two main ways you can protect your portfolio from a potential AI bubble: diversification and long-term investing.

When your investments are diversified across a range of asset classes in different stock markets and geographical regions, it helps to lower your investment risk. If one stock falls, another might rise, stabilising the overall value of your portfolio.

We constantly monitor our investment proposition to ensure adequate diversification. For instance, in August, we improved diversification in the equity element of our Perspective portfolios.

Long-term investing means holding onto your assets for an extended period, particularly when markets are volatile. Historically, markets bounce back, meaning that if you hold onto your investments, you might see continued growth if and when markets recover. Alternatively, selling during downturns can lock in losses, meaning you miss out on future returns and potentially derail your long-term financial goals.

Get in touch

If you are concerned about how the AI bubble might affect your investments, get in touch with your Rossborough Financial contact. We can provide reassurance and ensure your portfolio is well-prepared for market upsets.

You can email enquiries@rfsl.co.uk to book an appointment with your adviser today. Alternatively, call 01534 502000 in Jersey or 01481 747940 in Guernsey to set up a meeting.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of current tax legislation, which is subject to change.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Rossborough Financial Services Limited is regulated by the Jersey Financial Services Commission under the Financial Services (Jersey) Law 1998 and licensed by the Guernsey Financial Services Commission.