There has been much talk in investment markets recently about the “AI Bubble” and whether it could burst and cause a severe share market fall. This is a very valid concern as the major US technology companies that are the artificial intelligence leaders have continued to rise and rise in price.

The seven largest US tech companies Microsoft, Apple, Alphabet (Google), Amazon, Nvidia, Meta (Facebook) and Tesla have attracted enthusiastic buyers for years, and their market capitalisation is now enormous. Those seven companies now make up 35 per cent of the S&P500 index of US shares.

As a result of their growth the proportion of US shares in the MSCI global index has now grown to 68 per cent. So the US tech companies now make up nearly a quarter of the value of all market listed shares worldwide.

Many people think these companies are overpriced. That is very difficult to assess. AI has huge potential. It will change the world, just as the motor car and the internet did. It will improve efficiency, reduce costs and boost productivity. It will raise living standards.

How much profit will these few major companies developing AI make from it? Will they control its sale and pricing? Will there be an oligopoly? Or will the supply of AI programs become more widely owned, more democratised, and lower priced?

If there is an oligopoly, future profits could be unbelievably huge, and the current extreme share prices well justified. If the production and supply of AI programs becomes widely owned, profit margins will reduce to be relatively small. If that happens, the major tech companies look overpriced.

The latter seems more likely, in my opinion. No company, or small group of companies, ever dominated the supply of motor cars or the internet.

If the big tech companies don’t end up dominating the supply of AI programs their share prices must plateau and fall back. However that question won’t be answered at any specific moment. It will be a gradual realisation that their dominance is being diluted, and so a more gradual fall.

Importantly the big tech companies leading AI development are not profitless. They are already making big profits from other activities and most hold large cash reserves.

Microsoft shares are trading at about 31 times the company’s expected 2026 profit. That’s not cheap, but nor is it ridiculously expensive. Apple is trading at around 32 times forecast profits, Alphabet (Google) is at 26 times, Meta (Facebook) 21, and Nvidia around 30 times.

It is also very difficult to time market corrections. Going defensive too early can mean large lost gains.