JP Morgan report: AI investment surge backed by fundamentals, no bubble in sight
A new JP Morgan report asserts that the ongoing surge in artificial intelligence investment is underpinned by robust cash flows and accelerating adoption, indicating the absence of a speculative bubble in the sector.
- Nov 25, 2025,
- Updated Nov 25, 2025 9:42 PM IST
A recent JP Morgan report finds the current rally in artificial intelligence (AI) related investments to be justified and sustainable, with no evidence of a bubble forming at this stage. While high expectations and rapid investment flows could create conditions for a market bubble, the present cycle is being fuelled by strong fundamentals such as significant capital expenditure (Capex) and expanding AI adoption. The report notes that forward price-to-earnings multiples for listed AI companies have declined over the past three years, even as earnings per share estimates more than doubled. This suggests the sector's robust financial health and offers reassurance for investors concerned about excessive speculation.
For major AI companies, aggregate cash flows from operations continue to exceed capital expenditures and dividend payouts. This indicates that current AI investment is primarily funded through operational cash flows rather than borrowing, in contrast to historical speculative bubbles. JP Morgan states, "The ingredients are certainly in place for a market bubble to form, but for now, at least, we believe the rally in AI-related investments is justified and sustainable. Capex is massive, and adoption is accelerating."
The report observes that financial innovation within the AI sector is accelerating. The firm is monitoring for potential weaknesses in underwriting standards, especially in areas such as power purchase agreements, private equity, and venture capital investments. However, the report finds no evidence of deteriorating standards so far, and financial strength remains a critical factor underpinning the sector's performance.
The report highlights supporting data centre infrastructure for AI, noting that vacancy rates have fallen to a record low of 1.6 per cent. Three-quarters of the capacity under construction is already pre-leased, indicating robust demand and minimal risk of overcapacity. Components across the computing, power, and data centre value chain remain scarce relative to demand. Recent earnings reports from major technology firms confirm that AI adoption is contributing directly to revenue growth.
JP Morgan contrasts the current AI investment environment to previous speculative cycles, noting the absence of cheap speculative capital or financial structures that artificially inflate prices. As AI investment continues, leverage may increase, but current AI spending is being driven by genuine earnings growth rather than assumptions of future returns. The analysis points out that historically, bubbles have formed when valuations surpass fundamentals, often due to the belief that new technology will revolutionise the market. In contrast, today's AI boom is characterised by returns generated from fundamental earnings expansion.
Citing historical parallels, the report references the UK's 1840s railway boom and the internet boom of the late 1990s, both of which saw capacity expand ahead of demand and led to bubble conditions. In the case of AI, the report finds no evidence of excess capacity, despite optimism and large-scale investments. The analysis concludes that strong fundamentals, rather than speculation, are currently driving the sector's performance.
A recent JP Morgan report finds the current rally in artificial intelligence (AI) related investments to be justified and sustainable, with no evidence of a bubble forming at this stage. While high expectations and rapid investment flows could create conditions for a market bubble, the present cycle is being fuelled by strong fundamentals such as significant capital expenditure (Capex) and expanding AI adoption. The report notes that forward price-to-earnings multiples for listed AI companies have declined over the past three years, even as earnings per share estimates more than doubled. This suggests the sector's robust financial health and offers reassurance for investors concerned about excessive speculation.
For major AI companies, aggregate cash flows from operations continue to exceed capital expenditures and dividend payouts. This indicates that current AI investment is primarily funded through operational cash flows rather than borrowing, in contrast to historical speculative bubbles. JP Morgan states, "The ingredients are certainly in place for a market bubble to form, but for now, at least, we believe the rally in AI-related investments is justified and sustainable. Capex is massive, and adoption is accelerating."
The report observes that financial innovation within the AI sector is accelerating. The firm is monitoring for potential weaknesses in underwriting standards, especially in areas such as power purchase agreements, private equity, and venture capital investments. However, the report finds no evidence of deteriorating standards so far, and financial strength remains a critical factor underpinning the sector's performance.
The report highlights supporting data centre infrastructure for AI, noting that vacancy rates have fallen to a record low of 1.6 per cent. Three-quarters of the capacity under construction is already pre-leased, indicating robust demand and minimal risk of overcapacity. Components across the computing, power, and data centre value chain remain scarce relative to demand. Recent earnings reports from major technology firms confirm that AI adoption is contributing directly to revenue growth.
JP Morgan contrasts the current AI investment environment to previous speculative cycles, noting the absence of cheap speculative capital or financial structures that artificially inflate prices. As AI investment continues, leverage may increase, but current AI spending is being driven by genuine earnings growth rather than assumptions of future returns. The analysis points out that historically, bubbles have formed when valuations surpass fundamentals, often due to the belief that new technology will revolutionise the market. In contrast, today's AI boom is characterised by returns generated from fundamental earnings expansion.
Citing historical parallels, the report references the UK's 1840s railway boom and the internet boom of the late 1990s, both of which saw capacity expand ahead of demand and led to bubble conditions. In the case of AI, the report finds no evidence of excess capacity, despite optimism and large-scale investments. The analysis concludes that strong fundamentals, rather than speculation, are currently driving the sector's performance.