Prof G Markets — "The AI Bubble Is Real — Here’s How to Prepare for the Pop"

Podcast: Prof G Markets
Hosts: Scott Galloway & Ed Elson
Date: October 13, 2025
Network: Vox Media Podcast Network

Episode Overview

In this episode, Scott Galloway and Ed Elson discuss mounting concerns over an AI-driven market bubble—its roots in circular investments, concentrated market gains, and increasingly speculative behavior across asset classes. They break down the evidence for the bubble, its impact on financial markets, and how investors should respond. The episode also explores Tesla’s struggles to justify its valuation, the surging popularity of gold, and why America’s "hire and fire" dynamic drives innovation compared to Europe.

Key Discussion Points & Insights

1. Is There an AI Bubble?

• [06:47] Ed: Cites recent “circular deals” between tech giants (e.g., AMD/OpenAI, Nvidia/xAI), with growing media consensus on an AI bubble.
• [07:41] Scott identifies "circular financing" as the "original sin" of this bubble, with valuations described as unsustainable.

“Valuations in AI are at a bubble. You cannot value a $50 million ARR company at $10 billion.” — Scott Galloway, [07:41]

• [08:25] Scott: Even when a bubble is recognized, the market often continues to climb (“another 20 or 30% upside” after people start calling it).

Notable Evidence:

• Tech leaders’ and investors' actions signal concern (Sam Altman openly discusses a bubble; Warren Buffett is “selling like a madman”).
• The interlocking web of investments all flowing through Nvidia is seen as the most alarming bubble indicator ([09:40]).
• Kyla Scanlon quote: “America right now is just a giant bet on AI.”

Market Implications:

• The S&P 500’s gains are disproportionately thanks to 10 companies—mainly AI-focused tech giants.

2. How Deep Is the AI Reliance?

• [12:24] Ed: Illustrates conflicts of interest and "circular relationships" on AI company boards—Microsoft, OpenAI, Mistral, Inflection, Anthropic, and Salesforce all interlinked.

“This chart... showing all the incestuous deal making... that's the biggest evidence we might be near something of a reduction or a drawdown.” — Scott Galloway, [09:40]

• [13:47] Ed: AI companies have driven 80% of U.S. stock gains this year; Nvidia now larger than the UK, India, or Japanese stock markets.

Bubble Mechanics:

• Artificial demand: Big companies fund startups who then spend it back on the very firms' chips/service (especially Nvidia).
• Stock market and GDP gains are overwhelmingly AI-fueled: “Without AI... stock market would be flat and so would productivity.”

3. What Should Investors Do?

• [15:36] Scott: Emphasizes diversification; S&P 500 exposure alone is not really diversified anymore ("40% of it is in 10 companies").
• Considers hedging strategies: e.g., shorting the Nasdaq 100 or tech-heavy ETFs—“not... to create alpha, but as a means of just buying some insurance.”

“A lot of my investing strategy right now is... trying to protect myself just emotionally and mentally from someone who sees their total self worth wrapped up in how much money I have. Which I realize is pathetic, but it’s true.” — Scott Galloway, [17:47]

• [21:00] Ed: Valuations are historically high but not as astronomical as previous bubbles (MAG7 PE ratios at 27x vs. 52x in 2000). The difficulty of timing market corrections is highlighted.

“If you look at a five year timeframe, if you were to only invest at the highs... your returns would actually be equivalent to if you had invested at all of the other dates.” — Ed Elson, [22:43]

• Long-term advice: For most (especially younger) investors, staying invested and diversified pays off, not trying to call the exact top.

4. Gold: The Surprise Rocket of 2025

• [27:13] Ed: Gold hit $4,000/oz, up 121% since 2022 and outperforming Bitcoin. Gold ETFs’ AUM exploded.
• Central banks are expected to keep buying, but...
• [29:14] Robert Hayworth (guest, quoted by Ed): The surge is driven more by speculators and momentum traders than actual central bank activity.

“Actually the same forces that are driving up AI are also driving up gold, and that is momentum and speculation.” — Ed Elson, [29:39]

• [31:02] Scott: Gold’s rise also reflects diminished faith in U.S. Treasuries as a safe haven.
• [32:42] Ed reframes gold as a risk asset in 2025, comparable to speculative trades like AI and bitcoin, not a classic safe haven.

5. Tesla: Master of Distraction, or Next to Pop?

• [37:51] Ed: Tesla delayed its ambitious Optimus robot rollout; U.S. and Europe sales decline; once-lauded "cheap" models disappoint; key execs depart for Meta.

“...what is happening to Tesla? ...a car business that is in decline. It's just not a debate.” — Ed Elson, [44:18]

• [38:48] Scott: Criticizes Tesla’s attempts to convince the market it’s more than a car company, leveraging "weapons of mass distraction" like robotics, autonomous driving, satellites, and AI startups (Grok).

“They said it was going to be 80% of Tesla’s enterprise [value]. That’s clearly not true. And the core, the core business is struggling.” — Scott Galloway, [41:39]

• Tesla’s valuation is disconnected from legacy automakers (trades at 34x Ford/GM, 16x BYD). Growth is slowing despite meme stock status.
• Only real upside scenario: breakthrough in autonomy or AI, neither of which is evident.

6. Why America Innovates, Why Europe Lags

• [51:41] Ed introduces The Economist’s thesis: Europe’s rigid firing laws kill risk-taking, stifling startups and scale.

• [52:44] Scott: U.S. innovation thrives because hiring/firing is easy and there’s a cultural comfort with risk and failure. U.S. bankruptcy laws also encourage risk-taking and second chances.

“If things don’t work, you can pivot... When you can’t fire people... you’re much more reticent to hire them.” — Scott Galloway, [55:46]

• [59:38] Ed: Firing costs: 7 months’ wages in the U.S.; 31 in Germany; 38 in France. Lower severance = more nimble hiring. But U.S. needs European-style safety nets (e.g., universal childcare, maternity leave).

• [61:41] Scott: Supports universal childcare and notes market competition has improved parental leave policies. “Middle class is an accident” that exists thanks to redistribution; unregulated capitalism will self-destruct.

“Capitalism does not work. It collapses on itself, unless you consistently redistribute capital from the most fortunate, most blessed, and best performing companies and individuals back into the middle class.” — Scott Galloway, [73:02]

Notable Quotes & Memorable Moments

• “AI is enabling the president and a small number of companies are providing cloud cover for the current administration.” — Scott, [10:35]
• “America is a terrible place to be stupid... I would argue America is the worst place to be unlucky. But America is comfortable with a zeitgeist that is winners and losers.” — Scott, [68:18]
• “Prosperity, unprecedented, historic prosperity is here in America. It's just not evenly distributed.” — Scott, [73:46]
• “We have become weaponized by old people and by rich people...” — Scott, [73:49]

Timestamps for Important Segments

• [06:47] - Unpacking the AI Bubble: Circular funding deals, historical parallels, and warning signs
• [12:24] - Conflicts in AI boardrooms; dominance of Magnificent 10/7 stocks
• [15:36] - Portfolio management in a bubble; is S&P 500 diversification still real?
• [21:00] - Comparing current valuations to past bubbles; why market timing rarely works
• [27:13] - Gold goes wild: causes, risks, speculation
• [37:51] - Tesla’s tough year: robots stalled, price wars, declining sales
• [51:41] - Is "firing freedom" the secret to U.S. innovation?
• [61:41] - The case for U.S. worker protections and middle-class investment
• [74:36] - Week ahead: earnings season and predictions (Tesla/Palantir correction?)

Summary Takeaways

• AI Bubble: Both hosts firmly see evidence of an AI-driven market bubble, with problematic self-feeding investment and overreliance on a handful of tech giants.
• Market Guidance: Diversification, skepticism of concentration (even in S&P 500 funds), and hedges are considered prudent. Trying to time the crash is generally futile.
• Gold: Once a safety play, gold’s run is now explained by speculation, not fundamentals—just like AI stocks and Bitcoin.
• Tesla: The company is described as desperately trying to maintain its sky-high valuation with distractions ("AI company," robotics), while its core car business matures and competitors catch up.
• U.S. vs. Europe: America’s willingness to hire/fire and forgive failure underpins its dynamism, but requires a stronger safety net and better distribution to avoid social backlash or economic stagnation.
• Advice for Listeners: Stay diversified, plan for the long term, avoid the temptation to chase bubbles or try to forecast the exact top.

This episode is a must-listen for anyone wrestling with how AI, tech stocks, and speculation define modern markets—and how to balance risk, innovation, and stability as financial markets reach new extremes.