Wall Street is worried about a possible bubble in the artificial intelligence (AI) sector. Analysts are uncertain about how soon AI investments will be profitable. Goldman Sachs strategist Peter Oppenheimer believes that strong earnings are the main reason for the current rise in tech stock prices, even though the Nasdaq 100 is trading at 28 times forward earnings, above its 10-year average of 23. Oppenheimer explains that low interest rates and high savings are influencing current stock valuations. While there is optimism, experts are cautious about the enormous amounts invested in AI. OpenAI, valued at $500 billion, has never been profitable but works with NVIDIA, AMD, and Oracle. Other major companies like Amazon, Google, Meta, and Microsoft are also investing heavily in AI.

The Debate Around an AI Bubble

The tech community is split on whether an AI bubble is forming. Some think that investments will eventually pay off, with AMD’s CEO saying the AI boom marks the beginning of a long-term cycle. However, some experts caution that rapid investment growth may outpace real potential. Despite doubts, big tech firms remain confident in their investment strategies. Strong financials back major tech companies, showing high cash flows and favorable debt/equity ratios. Investors can look at ETFs with significant Big Tech exposure, such as Roundhill Magnificent Seven ETF, MicroSectors FANG+ ETN, and Vanguard Mega Cap Growth ETF, which have produced positive returns recently. There is a struggle between a strong belief in AI and wider economic concerns. The September Consumer Price Index (CPI) was 3.1%, and last week’s solid jobs report has raised fears of the Federal Reserve keeping rates steady. This makes betting on tech stocks challenging at the moment. Valuations seem stretched, with the Nasdaq 100 approaching a 29 times forward price-to-earnings (P/E) ratio, which is significantly higher than its historical average. This concern is evident in the VIX, now creeping back toward 18 after staying in the low teens during the summer. Traders are beginning to expect more market fluctuations as we move towards year-end. Reflecting on history, the dot-com peak of 1999-2000 saw Nasdaq multiples in the triple digits, so today’s levels are not as extreme. However, the large amounts of money flowing into a few select companies remind us of that time. This historical comparison suggests that we should consider strategies that could profit from a possible sharp, temporary market correction.

Q3 2025 Earnings and Market Strategies

The upcoming Q3 2025 earnings season will be crucial, especially for companies included in ETFs like the Roundhill Magnificent Seven ETF (MAGS) and the MicroSectors FANG+ ETN (FNGS). We need to determine if the massive investment in AI is translating into the expected revenue growth announced earlier this year. Any disappointment could lead to a significant negative reaction due to the high expectations currently reflected in prices. This environment is suitable for using options to manage risk, as implied volatility is increasing but not overly high. Buying puts on broad tech indexes like the QQQ or on specific companies with lower cash flows could provide a hedge for portfolios during earnings reports. For those confident in a company’s performance, selling cash-secured puts on dips can take advantage of the increased premium. Companies like Microsoft and Alphabet have strong balance sheets, making them less vulnerable to wider economic shocks. This financial strength suggests that sell-offs driven by fears about AI in these companies may be short-lived. They could be ideal candidates for strategies that benefit from limited trading ranges or quick recoveries after market drops. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now