Broker: CGS International
Date of Report: September 11, 2025

AI Mania or Market Bubble? Why Tech Valuations Now Outpace the Dot-Com Era

Introduction: Market Euphoria Detaches from Fundamentals

The Asia Pacific Strategy Flash Note from CGS International delivers a deep dive into the current speculative surge in Artificial Intelligence (AI) and technology stocks. Recent market action, such as Oracle’s after-hours rally despite an earnings miss, highlights a familiar story: tech prices are soaring, but underlying fundamentals are increasingly out of sync. This analysis explores the drivers, risks, and maturity of the ongoing AI-led tech rally.

Oracle: The Classic Pipeline Beat vs. Earnings Miss

Oracle’s latest earnings announcement is a prime example of today’s speculative fervor:

• Despite disappointing earnings, Oracle’s sales guidance for the next four years was described as “extremely heroic.”
• The stock jumped 25% in after-hours trading—an extraordinary move considering that since the end of 2021, Oracle’s share price has surged nearly 200% while its earnings have declined over the same period.
• This reflects a broader trend where tech stocks are increasingly valued on their capital expenditure and pipeline promises, with little regard to current profitability.

Tech Valuations: Surpassing the Dot-Com Bubble

Today’s tech sector is trading at metrics that eclipse even the wildest days of the 2000 dot-com bubble:

• US information technology stocks now trade at 10x price-to-sales (P/S)—beyond the 8.5x P/S peak recorded in 2000.
• As highlighted by former Sun Microsystems CEO Scott McNealy, a 10x P/S valuation would require a company to pay 100% of its revenues as dividends for a decade, assuming zero costs and taxes—a scenario deemed “heroic and not sustainable.”
• This speculative detachment between price and fundamentals echoes classic bubble dynamics, with a positive feedback loop fueling further price escalation.

AI Spending: Maturity and Warning Signals

While AI remains a legitimate driver of tech optimism, several warning signs suggest the trend may be approaching maturity:

• Capital spending by hyperscalers continues to fuel the rally, but AI investments have created a spiraling cost model.
• If AI systems become cheaper, proliferate faster, or fail to deliver expected returns, today’s vast capital outlays could prove misguided.
• Non-linear, euphoric price action—combined with “heroic” valuations—signals that the current trend is mature and potentially vulnerable.

From a macro perspective, the report notes that labor market deterioration in the US is now comparable to levels seen before the 2001 and 2008 downturns, raising red flags for domestic demand and corporate profits.

Market Outlook: Fed Rate Cuts May Not Be Enough

Despite expectations for aggressive Federal Reserve rate cuts, CGS International remains unconvinced these will be sufficient to stabilize growth or corporate profits in the coming months. The divergence between market prices and fundamentals is now highly pronounced, and history suggests such imbalances are unsustainable over the long term.

Stock and Sector Rating Framework

CGS International employs a clear framework for stock, sector, and country ratings. The definitions are as follows:

Rating Distribution (As of June 30, 2025)

Coverage spans 561 companies for the quarter ended June 30, 2025.

Disclosure and Coverage

• As of September 8, 2025, CGS International holds no proprietary positions in companies covered or recommended in this report.
• As of September 11, 2025, the analysts responsible for this report have no interests in the securities covered or recommended.

Conclusion: Risk of a Boom-Bust Cycle Remains High

The Asia Pacific Strategy Flash Note sounds a cautionary note for investors: while technology and AI continue to captivate markets, the gap between price and reality is now more pronounced than during the dot-com era. With labor market weakness and unsustainable valuations, the risk of a sharp correction—or a classic boom-bust cycle—remains tangible. Investors are advised to remain vigilant, question heroic assumptions, and prepare for potential volatility ahead.