Are we in an AI bubble?

Summary

Marketplace Morning Report: "Are we in an AI bubble?"

Date: August 29, 2025 | Host: Nova Safo (in for David Brancaccio)
Special Guest: Dean Smith, Chief Strategist at Folio Beyond

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Episode Overview

This episode of Marketplace Morning Report dives into whether current sky-high valuations for AI-related tech stocks—particularly the "Magnificent Seven"—point to a new financial bubble echoing the dot-com era, or something fundamentally different. Alongside breaking news updates, the show features a focused interview with Dean Smith, shedding light on artificial intelligence investment trends, market caution, and what separates the AI surge from previous bubbles.

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Key Discussion Points & Insights

1. Federal Reserve Governor Lawsuit and Independence

[00:17–01:19]

• Story: Federal court to hear Lisa Cook's lawsuit challenging President Trump's effort to fire her as a Federal Reserve governor.
• Key detail: Federal law states the president can only remove Fed governors "for cause," traditionally neglect of duty. The Trump administration alleges mortgage fraud; Cook disputes the dismissal grounds.
• Impact: Decision could test Fed’s independence and clarify legal standards for presidential dismissal of Federal Reserve officials.

2. The Latest Inflation Numbers

[01:19–01:54]

• Update: Release scheduled for the Personal Consumption Expenditures Price Index (PCE)—the Fed’s preferred inflation measure.
• Projection: PCE expected to rise by 0.2% for July, influencing monetary policy decisions.

3. Are We in an AI Bubble? The Magnificent Seven’s Market Power

[02:12–02:49]

• Context: Seven stocks (Nvidia, Apple, Microsoft, Amazon, Meta, Alphabet, Tesla—dubbed “The Magnificent Seven”) now account for over a third of S&P 500 value, largely thanks to AI optimism.
• Concern: Rapid value growth draws scrutiny—could these inflated hopes lead to a market bubble?

Interview: Dean Smith, Chief Strategist at Folio Beyond

[02:49–06:15]

• Are the “Magnificent Seven” overvalued?

  • “The stocks that make up the Mag 7 have really taken on a life of their own…Anytime you get above 100 times earnings, you're into speculative territory.”
    — Dean Smith [03:03]

• Why the increased caution now?

  • Smith highlights that while core AI technological progress is real (from software models to data centers), business adoption is proving more challenging and slow than expected.
  • “That's turning out to be much, much harder.”
    — Dean Smith [03:38]

• Dot-com bubble vs. AI surge—a fair comparison?

  • Smith distinguishes the present from the late-90s bubble, calling out differences in depth and reality of AI innovation versus the more superficial dot-com craze:
  • “In the case of the dot com bubble, everybody wanted to be something or other.com and a lot of that was just nonsense. ... The AI revolution is something different.”
    — Dean Smith [04:24, 04:53]

• Agentic AI as the major shift

  • Emerging "agentic" AI systems can autonomously run, write software, and manage business tasks—seen as a foundational difference from generic internet businesses.
  • “These agents, they can run software, they can write software, they can do accounting functions…that go far beyond simply asking ChatGPT a question.”
    — Dean Smith [04:53]

• Is this a bubble—yes or no?

  • Smith’s take: While stocks may be priced at unsustainable, speculative levels, the underlying AI technology is fundamentally sound and transformative.
  • “To the extent there’s a bubble, if you want to call it that, it's there. It’s in the valuations. It's not in the AI technology itself.”
    — Dean Smith [05:34]

4. Tariff Change on Imports Under $800

[06:16–06:58]

• Announcement: The "de minimis" tariff exemption for packages under $800 entering the US (except from China) ends, affecting e-commerce businesses and online shoppers.

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Notable Quotes & Memorable Moments

• Dean Smith on Speculative Valuation:
  “Anytime you get above 100 times earnings, you're into speculative territory.” [03:03]
• Dean Smith on Innovation vs. Hype:
  “The AI revolution is something different. We don't know exactly where it's going to go, but the real innovation that's happening now is so-called agentic AI.” [04:53]
• Dean Smith on What Might Burst:
  “If you want to call it that, it’s there. It’s in the valuations. It’s not in the AI technology itself.” [05:34]
• Light moment—on dot-com nostalgia:
  Nova Safo: “I used to love their [pets.com] commercials.” [04:51]

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Timestamps for Key Segments

• Fed lawsuit and independence: [00:17–01:19]
• PCE inflation index preview: [01:19–01:54]
• Magnificent Seven & AI market valuations: [02:12–02:49]
• Dean Smith interview – AI bubble analysis: [02:49–06:15]
• Tariff exemption change: [06:16–06:58]

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Tone and Style

The conversation is urgent and clear, blending financial caution with optimism about technological progress. Dean Smith’s pragmatic analysis tempers the “bubble” conversation, highlighting the extraordinary pace and significance of AI advancements but also warning about unrealistic valuations. Nova Safo maintains a measured, inquisitive tone, aiming to inform regular listeners without hype or alarmism.

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Transcript

[Capella University Announcer]

At Capella University. Learning the right skills could make a difference. That's why our business programs teach you relevant skills you can take from the course room to the workplace. A different future is closer than you think with Capella University. Learn more at capella.edu.

[Nova Safo]

The first court hearing in a case that tests the Federal Reserve's independence from Marketplace. I'm NovaSafo in for David Brancaccio. A federal court in Washington is scheduled to hold a hearing this morning on Fed Governor Lisa Cook's lawsuit challenging President Trump's efforts to fire her. Marketplace's Nancy Marshall Genzer reports the judge.

[Nancy Marshall Genzer]

In today's hearing will just be deciding whether to allow Cook to stay in her job while the court ponders the bigger question, whether to uphold her dismissal by President Trump earlier this week. Federal law is vague on this only saying a president can fire a Federal Reserve governor for cause. Cause is usually interpreted as neglect of duty. While the Fed governor. The Trump administration has accused Cook of mortgage fraud before she was appointed to the Fed. In a lawsuit filed yesterday, Cook says the accusations against her don't meet the cause standard. The White House says President Trump had lawful authority to dismiss her. The Fed says it will abide by whatever the court decides. I'm Nancy Marshall Genser for Marketplace.

[Nova Safo]

Also this morning we get the latest reading of the Federal Reserve's preferred measure of inflation. That's the Personal Consumption Expenditures Price Index, PCE for short. The Fed uses it to guide its decision on the direction of interest rates. The index is projected to rise 2/10 of a percent in July. We'll find out if that pans out at 10am Eastern.

[Capella University Announcer]

At Capella University. Learning the right skills could make a difference. That's why our business programs teach you relevant skills you can take from the course room to the workplace. A different future is closer than you think with Capella University. Learn more at capella. Edu.

[Nova Safo]

When we tell you about the S&P 500 index that it moved up or down, the reality is that much of that movement is driven by just seven stocks known as the Magnificent Seven. That's Nvidia, Apple, Microsoft, Amazon, Meta Alphabet and Tesla. Combined, they make up more than a third of the S&P's value. And a lot of that value has built up in just the last few years. And it's tied to investors hopes for how artificial intelligence will transform our lives and the economy. But when values quickly balloon, there are questions about a potential bubble. For more, we turn to Dean Smith, chief strategist at Folio Beyond.

[Dean Smith]

Welcome Hi how are you?

[Nova Safo]

Thank you for joining us. So do you believe the AI trade and by extension the growth of the value we've seen in the Magnificent seven stocks, do you think all of that is overvalued in the market right now?

[Dean Smith]

The stocks that make up the Mag 7 have really taken on a life of their own. That doesn't mean that they're completely divorced from fundamentals. It does mean, however, that we need to be really cautious as we look at the valuations that are placed on these stocks. Anytime you get above 100 times earnings, you're into speculative territory.

[Nova Safo]

We've been in that territory for a bit now. Why are we hearing more concern coming out from analysts and investors now versus say a year ago?

[Dean Smith]

The technological developments in terms of software models, hardware, data centers, all that's very real. That's the first part of the story. The second part of the story is adoption of this technology that has hit a little bit more of a rough road. Businesses have been trying to find ways to incorporate the AI technology and innovations into their workflows and business processes. That's turning out to be much, much harder.

[Nova Safo]

Well, how much is this reminiscent of the dot com bubble of the late 90s, early 2000s? And are we heading toward another bubble here or a burst of a bubble?

[Dean Smith]

You know, you can only tell if something's a bubble in hindsight, of course, but I would say there's some real differences between what's happening today as compared to the the dot com bubble you referred to. In the case of the dot com bubble, everybody wanted to be something or other.com and a lot of that was just nonsense. Right? I mean, the classic example, of course is pets.com with their sock puppet mascot.

[Nova Safo]

I used to love their commercials.

[Dean Smith]

Yeah, absolutely. But the AI revolution is something different. We don't know exactly where it's going to go, but the real innovation that's happening now is so called agentic AI. These agents, they can run software, they can write software, they can do accounting functions, they can do all kinds of things that go far beyond simply asking ChatGPT a question. The widespread development and adoption of of agentic AI is the next step up. And that's what makes me really confident that this is not just another dot com bubble.

[Nova Safo]

So not a bubble, but perhaps some overvaluation in the market.

[Dean Smith]

That's exactly right. These are by any measure very, very expensive stocks. In addition, you've got many, many billions of valuation that's still privately held in private equity and venture capital firms. Okay, so there is just been an explosion in the valuations that is going to be really hard for a lot of these companies to grow into. So to the extent there's a bubble, if you want to call it that, it's there. It's in the valuations. It's not in the AI technology itself.

[Nova Safo]

All right. Dean Smith is chief strategist at Folio Beyond. Thank you very much.

[Dean Smith]

My pleasure. Thank you.

[Nova Safo]

And finally, did you feel it? At the stroke of midnight came the end of the longstanding de minimis exemption from tariff of some packages coming into the US that are worth less than 800 bucks. The exemption was already gone for China. This is going to affect e commerce companies, small businesses and customers using online marketplaces. Our executive producer is Nancy Fragali. Our digital team includes Antoinette Brock, Emily McCune, and Dylan Miettinen. Our engineers are Brian Allison, Rachel Breese, and Tessa Block. I'm Nova Safo with the Marketplace Morning Report from APM American Public Media.

[Emily Hanford]

The Trump administration is making deep cuts to education research.

[Dean Smith]

The cancellation notices started coming. When the contract is cut, the study just dies.

[Emily Hanford]

It's all happening just as schools are trying to make use of research to improve reading instruction.

[Nova Safo]

There would not have been a Science of Reading without the federal funding.

[Nancy Marshall Genzer]

It wouldn't have happened.

[Emily Hanford]

I'm Emily Hanford. On our new episode of Sold a Story, what the Trump cuts mean for the science of Reading. Go to your podcast app and follow Sold a Story.