AI stock mania is starting to resemble the dot-com bubble, warns investor Richard Bernstein
Bernstein urges caution as AI stock valuations soar, recommending a shift toward dividend-paying utilities for long-term stability and growth.
- Jul 7, 2025,
- Updated Jul 7, 2025 6:01 PM IST
The current frenzy around artificial intelligence stocks is starting to resemble past market bubbles, according to top investor Richard Bernstein, who warns the sector may be overheating.
In a blog post published on 30 June, the Chief Investment Officer at Richard Bernstein Advisors — which manages $15 billion in assets — compared today’s AI enthusiasm to the dot-com bubble of the early 2000s and the "Tronics" craze of the 1960s.
“Investors seem universally focused on ‘AI’, which seems eerily similar to the ‘.com’ stocks of the Technology Bubble and the ‘tronics’ craze of the 1960s,” Bernstein wrote, as cited by Business Insider. “Meanwhile, we see lots of attractive, admittedly boring, dividend-paying themes.”
Since the launch of ChatGPT in November 2022, markets have soared, with the S&P 500 climbing 54% and the Nasdaq 100 up a staggering 90%. Valuations have now approached historic highs, nearing those seen at the height of the dot-com boom and even the 1929 market peak.
While Bernstein clarified that he is not trying to time a market top, he stressed that major trades eventually reverse. “The best time to invest in something is when it's out of favour — not after a massive rally has occurred,” he noted.
He explained that investor behaviour tends to shift with the market cycle. “At the beginning of a bull market when momentum and beta strategies are by definition most rewarded, investors' fears lead them to emphasise dividends and lower-beta equities,” he said. “In later-cycle periods when dividends and lower beta become more attractive, investors’ confidence leads them to risk-taking and momentum investing.”
Bernstein believes the current climate fits the latter description. “We clearly are not at the beginning of a bull market and, as we’ve previously written, the profits cycle is starting to decelerate,” he added.
Against that backdrop, he argues dividend stocks, particularly in the utilities sector, could be primed for growth. These companies typically pay regular dividends, which investors can use as income or reinvest for compounded returns.
“One of the easiest methods for building wealth has historically been the power of compounding dividends,” Bernstein said. “Compounding dividends is boring as all get out, but it’s been highly successful through time.”
He pointed out that, over the long term, reinvesting dividends in utilities stocks has yielded surprisingly strong returns. “In fact, compounding dividend income has been so successful, that the Dow Jones Utilities Index’s returns have been roughly neck-and-neck with NASDAQ returns since NASDAQ’s inception in 1971,” he noted.
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The current frenzy around artificial intelligence stocks is starting to resemble past market bubbles, according to top investor Richard Bernstein, who warns the sector may be overheating.
In a blog post published on 30 June, the Chief Investment Officer at Richard Bernstein Advisors — which manages $15 billion in assets — compared today’s AI enthusiasm to the dot-com bubble of the early 2000s and the "Tronics" craze of the 1960s.
“Investors seem universally focused on ‘AI’, which seems eerily similar to the ‘.com’ stocks of the Technology Bubble and the ‘tronics’ craze of the 1960s,” Bernstein wrote, as cited by Business Insider. “Meanwhile, we see lots of attractive, admittedly boring, dividend-paying themes.”
Since the launch of ChatGPT in November 2022, markets have soared, with the S&P 500 climbing 54% and the Nasdaq 100 up a staggering 90%. Valuations have now approached historic highs, nearing those seen at the height of the dot-com boom and even the 1929 market peak.
While Bernstein clarified that he is not trying to time a market top, he stressed that major trades eventually reverse. “The best time to invest in something is when it's out of favour — not after a massive rally has occurred,” he noted.
He explained that investor behaviour tends to shift with the market cycle. “At the beginning of a bull market when momentum and beta strategies are by definition most rewarded, investors' fears lead them to emphasise dividends and lower-beta equities,” he said. “In later-cycle periods when dividends and lower beta become more attractive, investors’ confidence leads them to risk-taking and momentum investing.”
Bernstein believes the current climate fits the latter description. “We clearly are not at the beginning of a bull market and, as we’ve previously written, the profits cycle is starting to decelerate,” he added.
Against that backdrop, he argues dividend stocks, particularly in the utilities sector, could be primed for growth. These companies typically pay regular dividends, which investors can use as income or reinvest for compounded returns.
“One of the easiest methods for building wealth has historically been the power of compounding dividends,” Bernstein said. “Compounding dividends is boring as all get out, but it’s been highly successful through time.”
He pointed out that, over the long term, reinvesting dividends in utilities stocks has yielded surprisingly strong returns. “In fact, compounding dividend income has been so successful, that the Dow Jones Utilities Index’s returns have been roughly neck-and-neck with NASDAQ returns since NASDAQ’s inception in 1971,” he noted.
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