dailyloe.com – Fears of an artificial intelligence bubble are growing, according to Selena Maranjian of The Motley Fool. Some worry this growth is a bubble that will burst, taking semiconductor stocks down. Investors in the VanEck Semiconductor ETF (NASDAQ: SMH) may also worry. The ETF is entirely invested in semiconductor companies.
Opinions abound on whether an AI bubble exists. Some see a clear bubble, noting stock prices that seem ahead of themselves. The stock market has risen robustly for several years. In the seven years from 2019 to 2025, it advanced by double-digits, including an increase of nearly 18% last year.
But there is a persuasive case that we are not in a bubble akin to destructive ones in the past. The intense investment in AI infrastructure by hyperscalers generally comes from those companies’ earnings, not borrowings. Companies such as Microsoft and Meta Platforms do not seem to have steep valuations. They are not taking on debt and carrying steep valuations due to investor enthusiasm.
In 1999, before the 2000 crash, Microsoft had a peak price-to-earnings (P/E) ratio of 66. More recently, it was just 26. If you are a shareholder, Maranjian advises staying put. If you are thinking of buying, she suggests learning more about the ETF.
The ETF is home to about 25 semiconductor companies. Plenty of them seem more undervalued than overvalued. Its top holding, Nvidia, recently sported a forward-looking P/E ratio of just 24. For the second-largest holding, Taiwan Semiconductor Manufacturing, that number is 26.
