The AI bubble meets a market reckoning
From chips to cloud spending, markets are trying to separate durable winners from speculative noise.
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The murmers on Wall Street that AI could be in an unsustainable bubble have suddenly turned to a roar.
Even Nvidia's highly anticipated earnings report Wednesday, which showed record quarterly revenue driven by sales of its AI chips, couldn't really ease everyone's fears. The S&P 500 fell nearly 2% for the week and is off 3.5% this month. Meanwhile, the more tech-oriented Nasdaq Composite has slid 6% in November.
In such a "wild week," as my old Wall Street Journal colleague Greg Zuckerman described it, it always helps to step back and view the bigger picture.
Fortune's Dian Brady offered some useful long-term perspective in her newsletter:
"...All would be wise to remember that the AI bubble is a financial phenomenon, not a technological one. The assumption that they go together could be an expensive mistake.
"We’ve seen it before. When the internet bubble popped in 2000—the S&P plunged 49% in 31 months—many people concluded, 'You see? That internet thing was a big nothing.' Obviously they were wrong. The market had a seizure. Companies that were flimsily financed failed. But the technology continued to change the world."
One useful illustration of AI's mixed bag right now: tech companies' frenzied spending to build infrastructure for compute-intensive AI applications.
At face value, the outlays are indisputably enormous, expcted to top $580 billion this year. That's about $40 billion greater than the expected spending globally on oil and gas exploration, according to TechCrunch.
On the other hand, a lot of the AI spending is increasingly being scrutinized by analysts as "circular." In other words, it flows from one company whose share price has already been inflated by great AI-related expectations to another, carrying a similar "AI premium," because it sells chips or cloud services or another relevant input.
Strictly speaking, only one company in that equation has new revenue to speak of. The other has a new cost of equal size. Where is the overall value being created?
That's the thornier question markets are sorting out right now. Expect the process to take awhile longer.
Week in Review: Nov. 16-22, 2025
The week's bloodbath took a heavy toll on crypto prices as well, as investors' appetite for all sorts of speculative assets drew close to nil:
- Bitcoin fell to a seven-month low and is now on track for its worst month since 2022, off 33% from its all-time high above $126,000.
- Since early October, the broader token market has shed over $1 trillion in value, including $400 billion lost last week alone. Going into Monday, crypto's global market capitalization is hovering just below $3 trillion, according to CoinMarketCap.
- JPMorgan analysts said in a new report that the recent crypto market correction has been largely driven by retail investors selling U.S.-listed bitcoin and ether funds, with around $4 billion pulled from such investments in November so far. (The Block)
- Tom Lee, chairman of ether treasury company BitMine, says crypto's recent weakness may also stem from lingering liquidity issues among market makers on Wall Street since they lost $20 billion collectively in one day on Oct. 10. (TradingView)
- Some market pundits and press have been expressing great surprise that crypto is plunging despite all the regulatory relief the industry has gotten from the Trump administration this year. For the record, yours truly has been wary since the beginning of Trump II that he could create unexpected downsides. But hey... The regulatory rollback continues regardless. The administration's nomination of an industry-friendly chair for the Commodity Futures Trading Commission is moving forward in the Senate. And House members are weighing a new proposal to allow tax payments in bitcoin.
Market Snapshot
A quick look at some major indicators as of Friday's close on Wall Street:
| Indicator | Close | Weekly | YTD |
|---|---|---|---|
| Bitcoin | $84,422.32 | -10.9% | -10.0% |
| Gold | $4,079.50 | -0.1% | +55.2% |
| USD Index | 100.2 | +0.9% | -7.6% |
| 10-yr U.S. Treasury Yield |
4.063% | -0.085 | -0.510 |
| Nasdaq 100 | 24,239.57 | -3.1% | +15.4% |
| MSCI All-Country World Index (ex US) |
1,049.79 | -3.3% | +25.2% |
Looking Ahead
- Coinbase announced it will do a livestream on the company's official Twitter/X feed Dec. 17, dubbed System Update. Between the lines, it seems likely they will be announcing some new products and/or initiatives. Event starts 2 p.m. Pacific Standard Time
- The tech user's lifecycle: The Washington Post reports that some desperate parents now spend $8,000 per summer on phone-free "detox camps" for their kids, to mitigate the harms of excessive screen time. On the other hand, the Post also just ran a story about the benefits of tech usage for preventing age-related "brain rot" among older users. Go figure.
- Based on an analysis of Spotify data, researchers from the University of Southern California say the podcasting industry exhibits gender and racial inequalities far greater than what they saw doing similar work in movies, TV, and music. (NPR)
Odds & Ends
- There are now more private-equity funds in America than McDonald's locations, according to fintech platform iCapital. Wow.
- A New Jersey animal shelter just returned Asa, a local family's housecat that had been missing for a decade, using a microchip implanted long ago. 🐱
That's it for now. Thanks for reading the newsletter today! If you want to know more about w3w's history and (ahem) the author, that info is available here.
Please note, I regularly use several AI apps to assist production of w3w. But the final edit is 100% by me. For fuller detail, see the newsletter's commit history on GitHub.
If you need to reach me directly, please email peter[at]pmckay[dot]com.
Best wishes for a healthy and productive week ahead. 😊