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VT 
Wall Street has been concerned about a potential bubble in the artificial intelligence sector. Analysts are unsure if AI investments will be profitable soon. Goldman Sachs strategist Peter Oppenheimer argues that strong earnings drive the current tech stock rally, despite Nasdaq 100 trading at 28x forward earnings, above its 10-year average of 23.
Oppenheimer attributes current valuations to macro conditions like low rates and high savings. Despite optimism, there’s caution around the vast amount of capital spent on AI. OpenAI, valued at $500 billion, has no profitable history but collaborates with NVIDIA, AMD, and Oracle. Other companies, including Amazon, Google, Meta, and Microsoft, are making similar investments.
The Debate Around an AI Bubble
The tech community is divided on whether an AI bubble is forming. Some believe investments will eventually be rewarded, with AMD’s CEO describing the AI boom as the start of a long-term cycle. Some experts warn about rapid capital formation outpacing real potential. Despite skepticism, big tech companies are committed to their investment strategies, reflecting confidence in their plans.
Strong financials support large tech companies, with high cash flows and favourable debt/equity ratios. Interested parties might consider ETFs with significant Big Tech exposure, such as Roundhill Magnificent Seven ETF, MicroSectors FANG+ ETN, and Vanguard Mega Cap Growth ETF, which have shown positive returns recently.
We’re seeing a tug-of-war between the strong conviction in AI and broader economic worries. The September CPI print just came in a little hot at 3.1%, and with last week’s solid jobs report, fears of the Fed holding rates firm are capping immediate upside. This makes purely directional bets on tech stocks very tricky right now.
Valuations certainly feel stretched, with the Nasdaq 100 now pushing a 29x forward P/E, a notable premium over its historical average. This nervousness is reflected in the VIX, which we’ve seen creep back toward 18 after lingering in the low teens over the summer. This suggests traders are starting to price in more chop over the next month leading into year-end.
Looking back, we remember the dot-com peak of 1999-2000 when Nasdaq multiples were in the triple digits, so today’s levels are not nearly as extreme. However, the sheer amount of capital flowing into a few select names feels reminiscent of that era. This historical parallel justifies considering strategies that can profit from a potential sharp, albeit temporary, correction.
Q3 2025 Earnings and Market Strategies
The upcoming Q3 2025 earnings season will be a critical test, especially for the names held in ETFs like the Roundhill Magnificent Seven ETF (MAGS) and the MicroSectors FANG+ ETN (FNGS). We need to see if the massive AI spending is translating into the promised revenue growth announced earlier this year. Any disappointment could trigger an outsized negative reaction given the very high expectations baked into current prices.
This environment seems ripe for using options to define risk, as implied volatility is rising but not yet prohibitive. Buying puts on broad tech indexes like the QQQ, or on specific names with lower cash flow mentioned, could serve as a portfolio hedge into these earnings announcements. For those with conviction in a company’s report, selling cash-secured puts on dips can capitalize on this heightened premium.
We see that the big players like Microsoft and Alphabet have fortress-like balance sheets, which makes them less vulnerable to a macro shock. This financial strength suggests that any AI-fear-driven sell-offs in these specific names might be short-lived. This could make them prime candidates for strategies that benefit from range-bound trading or a quick bounce-back following a market-wide dip.
