Above the Noise: Has the ‘bubble talk’ been blown out of proportion?

Originally Posted 22 October 2025 – Above the Noise: Has the ‘bubble talk’ been blown out of proportion?

Key takeaways

Artificial intelligence

The companies driving AI spending are well-capitalized with substantial cash flow and proven business models.

Market environment

With surging investment in AI and interest rate cuts on the horizon, the backdrop for risk assets looks promising.

Credit card delinquencies

As US inflation has generally moderated, the rate of growth in credit card delinquencies has also flatlined.

There was a moment recently when the S&P 500 Index was trading at 6,700 and the 10-year US Treasury yield was at 4.10%.¹ I briefly considered releasing Above the Noise right then, if only to grab the attention of the nation’s teenagers. Six seven! Forty-one!

If that makes no sense to you, ask your youngest relatives. Or I can try to explain it, though my nearly 50 years on this planet may disqualify me as a reliable interpreter. Here’s the secret: It’s part of a wave of Gen Alpha slang that’s intentionally nonsensical or confusing. And honestly, that’s probably a fitting segue into the current market narrative.

Some observers view this third consecutive year of outsized US stock gains as similarly nonsensical.² That perception likely stems from elevated valuations,³ but valuations have never been a great timing tool. So, let’s try to make things less confusing.

The economy has been resilient. The Atlanta Federal Reserve (Fed) estimates real gross domestic product (GDP) growth is running between 3% and 4%.⁴ Corporate earnings have been strong.⁵ Inflation expectations are contained.⁶ Yields have fallen.⁷ Oil prices are below $60.⁸ Credit spreads are tight.⁹ And the Fed appears ready to cut rates further.¹⁰ In a “Goldilocks-ish” macro environment like this, I’m not inclined to fight the Fed.

Phone a friend

Let’s immediately get to the artificial intelligence (AI) bubble question. I reached out to Ash Shah, Senior Portfolio Manager of the Discovery Growth team at Invesco. His response:

“There are certain echoes of past tech bubbles in today’s markets, particularly the AI circular investment deals, where suppliers, investors, and customers become intertwined.

There are key differences, however, that make this moment distinct from the late 1990s. The companies driving much of the AI spending today are well-capitalized, generate substantial cash flow, and have proven business models.¹¹ Valuations, while elevated, aren’t at the extremes of the dot-com era.¹² For example, NVIDIA trades at around 23x (times) forward earnings, compared to Cisco’s 80x multiple during the height of the 1990s bubble.¹³ Back then, fiber was being laid without a clear use case. Today, demand appears insatiable, with NVIDIA essentially reporting that it can’t ship chips fast enough.¹⁴

We do need to monitor the risks. Certain companies, for example, OpenAI, have committed to sizeable spending in the coming years and are relying on continued access to capital markets to support it. If the funding dries up, especially for firms that are increasingly interconnected, then we could see a meaningful unwind. So far, there are little to no signs of stress in the capital markets.”

It may be confirmation bias, but …

… the concerns over credit card balances and delinquencies may be overstated. Delinquency rates had been remarkably stable for years, until inflation surged in 2022. That spike in prices led to record-level credit card balances, sparking fears that consumers were overextending themselves. However, that’s a bit like saying “Avengers: Endgame” made more money than the original “Star Wars.” That’s only true if you don’t adjust for inflation. In real dollar terms, balances declined for most credit risk tiers, with the notable exception of the lowest-rated borrowers.¹⁵ Not surprisingly, as inflation has generally moderated,¹⁶ the rate of growth in credit card delinquencies has also flatlined.¹⁷

Credit card deliquencies have leveled off

It was said

“As we saw during the Covid pandemic, lab-created experiments can wreak havoc when they escape their confines. Once released, they can’t easily be put back. The ‘extraordinary’ monetary-policy tools unleashed after the 2008 Financial Crisis have similarly transformed the Federal Reserve’s policy regime, with unpredictable consequences.”

— US Treasury Secretary Scott Bessent

This one draws my ire a bit. I was there in 2008, staring into a deflationary abyss. Fiscal support was scarce, rendering monetary policy as the only game in town. For a decade afterward, the Fed struggled to get inflation expectations back up into the comfort zone.¹⁸ When the Fed raised rates in 2015, the dollar surged¹⁹ and the stock market didn’t handle it well.²⁰

I was also there in 2020, during the pandemic, facing yet another deflationary threat. Again, the Fed responded forcefully. Inflation did emerge, but fiscal spending and supply chain disruptions played a major role. Now, five years later, we’ve come through with inflation expectations contained²¹ and a 4.3% unemployment rate.²² That’s no small feat given the magnitude of those two deflationary shocks.

If anything, rather than scolding the policies of former Fed Chair Ben Bernanke, I’d support building a monument to him on the National Mall.

Since you asked (Part 1)

Q: Do you believe in the debasement trade?

A: First, let’s define the debasement trade. It’s based on the belief that fiat currencies, especially the US dollar, are losing purchasing power due to persistent government deficits and aggressive monetary policy. Investors who subscribe to this view hedge against currency erosion by shifting capital into hard assets that can’t be easily printed or diluted, such as gold, bitcoin, and other commodities.

Personally, I don’t subscribe to the debasement trade, notwithstanding the recent rises in gold and bitcoin.²³ If anything, the US dollar has shown remarkable stability and has even rallied recently after falling from historically lofty levels earlier in the year.²⁴ There’s been a strong appetite for US Treasuries, with 10-year yields falling nearly 80 basis points this year,²⁵ and continued demand for US stocks.²⁶ While assets like gold and bitcoin can serve as potential hedges within a diversified portfolio, I wouldn’t advocate for a substantial allocation to the so-called debasement trade.

Since you asked (Part 2)

Q: Would the US economy be in a recession if there wasn’t a surge in AI investment?

A: That’s almost like asking if the Kansas City Chiefs would have as many championship rings without Patrick Mahomes. They have Patrick Mahomes. But seriously, the surge in AI investment is masking some underlying softness in the economy. Payroll growth is slowing,²⁷ manufacturing surveys have hovered just below the line between expansion and contraction,²⁸ and housing activity remains weak.²⁹ It’s hard to prove a counterfactual, but I suspect that without the AI boom, policymakers might have already moved more aggressively to ease conditions, potentially reinvigorating housing and other interest-rate-sensitive sectors.

The point is, we do have AI investment, and it has supported aggregate growth. And policy easing appears to be continuing. So, regardless of how you attempt to prove this counterfactual, the backdrop for risk assets looks promising.

On the road again

I held back on travel this month for a variety of different reasons. My colleague took the tour bus from Pittsburgh to Detroit to Kansas City to Omaha to Baton Rouge, and other locations along the way. I’m not going to deny that I had FOMO (fear of missing out), even as I did enjoy being home for the family dinners. My world tour commences next week. Rest assured, I’ll be back with my travel notes.

Enjoy the fall. As Billie Holiday, Ella Fitzgerald, Louis Armstrong, Frank Sinatra, and many others sang, “Autumn in New York, it lifts you up.” I couldn’t agree more.

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• 1 Source: Bloomberg L.P., Oct. 15, 2025. On Oct. 8, 2025, the 10-year US Treasury rate traded at 4.10% before closing at 4.11%. The S&P 500 Index closed at 6,753.
• 2 Source: Bloomberg L.P., Oct. 15, 2025, based on the returns of the S&P 500 Index, which posted returns in 2023, 2024, and year to date Oct. 14, 2025 of 26.26%, 25.00%, and 14.10%, respectively.
• 3 Source: Bloomberg L.P., Oct. 15, 2025, based on the price-to-earnings ratio of the S&P 500 Index.
• 4 Source: Federal Reserve Bank of Atlanta, based on the Atlanta Fed GDPNow GDP Forecast.
  GDPNow is a nowcasting model created by the Federal Reserve Bank of Atlanta that forecasts real GDP growth by aggregating 13 components that make up GDP with the chain-weighting methodology used by the US Bureau of Economic Analysis.
• 5 Source: Bloomberg L.P., June 30, 2025, based on the second quarter earnings of the companies in the S&P 500 Index.
• 6 Source: Bloomberg L.P., Oct. 15, 2025, based on the 3-year US Treasury inflation breakeven. A breakeven inflation rate is a market-derived estimate of future inflation, calculated by comparing the yield on a standard government bond (nominal) to the yield on a Treasury Inflation-Protected Security (TIPS) of the same maturity.
• 7 Source: Bloomberg L.P., Oct. 15, 2025, based on the 10-year US Treasury rate, which peaked at 4.79% on Jan. 14, 2025 and closed at 4.03% on Oct. 14, 2025.
• 8 Source: Bloomberg L.P., Oct. 15, 2025, based on West Texas Intermediate Crude Oil Domestic Sweet.
• 9 Source: Bloomberg L.P., Oct. 15, 2025, based on the yield spread between the Bloomberg US Corporate Bond Index and the 3-month US Treasury yield.
• 10 Source: Bloomberg L.P., Oct. 15, 2025, based on the fed funds implied rate, which is the difference between the spot rate and the futures rate, which is an interest rate that can be calculated for any security with a futures contract.
• 11 Comments are related to companies such as Microsoft, Alphabet, and Meta. The mention of individual names is not intended as investment advice.
• 12 Source: Bloomberg L.P., Oct. 15, 2025, based on the price-to-earnings ratio.
• 13 Source: Bloomberg L.P., Oct. 15, 2025.
• 14 Source: CNBC, “Nvidia shares rise after CEO Huang says AI computing demand is up ‘substantially’” Oct. 8, 2025.
• 15 Source: TransUnion Credit Card Industry Insights Report, 2025.
• 16 Source: US Bureau of Economic Analysis, Aug. 31, 2025, based on the year-over-year percent change in the core Personal Consumption Expenditure. Personal consumption expenditures (PCE), or the PCE Index, measures price changes in consumer goods and services. Expenditures included in the index are actual US household expenditures. Core PCE excludes food and energy prices.
• 17 Source: US Federal Reserve, Sept. 30, 2025, based on the percentage of credit card loans at commercial banks that are delinquent.
• 18 Source: US Bureau of Economic Analysis, Aug. 31, 2025, based on the year-over-year percent change in the core Personal Consumption Expenditure.
• 19 Source: Bloomberg L.P., Oct. 15, 2025, based on the US Dollar Index, which measures the value of the US dollar versus a trade-weighted basket of currencies. The US dollar increased by 28% from the middle of 2014 through the end of 2016.
• 20 Source: Bloomberg L.P., Oct. 15, 2025, based on the 13.31% peak-to-trough decline in the fall of 2015 following the Fed rate hike in 2015.
• 21 Source: Bloomberg L.P., Oct. 15, 2025, based on the 3-year US Treasury inflation breakeven. A breakeven inflation rate is a market-derived estimate of future inflation, calculated by comparing the yield on a standard government bond (nominal) to the yield on a Treasury Inflation-Protected Security (TIPS) of the same maturity.
• 22 Source: US Bureau of Labor Statistics, Aug. 31, 2025.
• 23 Source: Bloomberg L.P., Oct. 15, 2025. Year to date, the gold spot price has risen by 59.93% and bitcoin has risen 17.21%.
• 24 Source: Bloomberg L.P., Oct. 15, 2025, based on the US Dollar Index, which measures the value of the US dollar versus a trade-weighted basket of currencies. The US dollar declined 11.99% from its 2025 peak on Jan. 13, 2025 to its 2025 trough on July 2, 2025. Since the 2025 trough, the US dollar has increased 2.11%.
• 25 Source: Bloomberg L.P., Oct. 15, 2025, based on the 10-year US Treasury rate, which peaked at 4.79% on Jan. 14, 2025 and closed at 4.03% on Oct. 14, 2025.
• 26 Source: Bloomberg L.P., Oct. 14, 2025, based on the 14.10% year-to-date return of the S&P 500 Index.
• 27 Source: US Bureau of Labor Statistics, Aug. 31, 2025, based on nonfarm payrolls.
• 28 Source: Institute for Supply Management, Sept. 30, 2025, based on the ISM Manufacturing Index, which is based on Institute of Supply Management surveys of manufacturing firms in the US, which monitors employment, production, inventories, new orders, and supplier deliveries.
• 29 Source: US Census Bureau, Aug. 31, 2025, based on US New Privately Owned Housing Units Started by Structure.