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Jerome Powell doesn’t see an AI bubble.
That seems like the bigger takeaway versus the fact the Federal Reserve did what everyone expected by cutting interest rates by 25 basis points. And while stocks dipped after Powell said another move lower in December wasn’t a sure thing, even that felt negligible in comparison.
One reporter asked the Fed chairman to share his thoughts on the huge amounts of spending tied to artificial intelligence, and whether he saw similarities between the AI boom and the dot-com bubble.
Sharing the view of Opening Bell Daily, Powell doesn’t believe the comparison holds weight.
“This is different in the sense that these companies [today] that are so highly valued actually have earnings and stuff like that,” he said. “If you go back to the nineties and the dot-com, these were ideas rather than companies. So there was a clear bubble there.”
To his point, valuations for leading technology names in 2000 far outpaced those of today. Even Nvidia, which just surpassed a $5 trillion market cap, hovers just below a forward price-to-earnings ratio of 33 — a fraction of what Oracle and Cisco saw just before the dot-com crash.
Without naming individual stocks, Powell added that the Big Tech sector in 2025 is reporting real earnings and profits on the back of actual business models, which wasn’t the case more than two decades ago.
The central banker was also unconcerned about how much AI spending was contributing to economic growth.
Indeed, Meta, Microsoft, Google, Amazon and Oracle, for instance, will spend nearly $400 billion combined for the fiscal year 2025 — roughly triple what the group spent before ChatGPT launched in 2022.
“[AI] is clearly one of the big sources of growth in the economy,” Powell said. “Consumer spending also though is much bigger than that and has been growing, and has defied a lot of the negative forecasts.”
In any case, the Fed voted to lower its benchmark borrowing rate into the range of 3.75 percent to 4 percent in a 10-2 vote on account of moderating inflation and a weakening labor market.
Governor Stephen Miran dissented in favor of cutting 50 basis points, while Kansas City Fed President Jeffrey Schmid dissented in favor of making no move.
U.S. stocks gave up their gains from earlier in the day, with the Dow closing negative and the S&P 500 flat.
“We think this will prove to be a buying opportunity because the Fed is likely to continue to support both stock and bond markets by cutting interest rates significantly over the next 12 months,” said Chris Zaccarelli, chief investment officer for Northlight Asset Management, “even if they do keep rates unchanged in December.”
Phil Rosen
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