December 15, 2025
Filed under: General
Looking back on 2025, it is clear that everyone saw something different. When nothing lines up neatly, our brains assume something bad must be lurking beneath the surface. And even though your year-end statements may look strong, it is completely normal to feel a little anxious that the clock could strike midnight and everything turns back into a pumpkin.
Which brings us to the question of the year: are we in an AI bubble?
The short answer is no one knows. On one hand, markets boomed upwards, valuations for a very small group of companies are absurd, and headlines seem to scream bubble. On the other hand, the technology seemingly works. We’re using it a lot. And the revenue these companies are earning is very real, not made-up Monopoly money.
So, we sit in this awkward in-between place where the story is powerful, but the speed and concentration make everyone a little nervous that the party will end.
In the spirit of being early to the party, here are the terms you might hear a lot more often if the AI bubble pops:
- Special Purpose Vehicles (SPVs): AI companies need a lot of money to build infrastructure. Instead of borrowing directly, many are setting up SPVs to bring in third parties to help fund their projects and get the debt off their books. Perfectly legal and sometimes very useful. Also, the kind of structure that can quietly hide where the risk lands if AI demand ever cools. For those keeping score, Enron was also fond of SPVs.
- Private Credit: If the tech giants are not fronting all the cash, who is? Enter private credit. These investment firms lend like banks without the regulation. They have shoveled billions into the AI buildout. Pension funds and traditional banks have invested in them to juice their returns, which means a lot of people are participating in the AI expansion without knowing they are participating in the AI expansion.
- Circular Financing: The most boring-sounding term might be the most fun. Picture this: a chip maker sells one billion dollars of product to an AI developer. The AI developer then invests hundreds of millions back into the chip maker. Money moves in a circle. The revenue is real, but not the kind generated when an actual customer buys something. This can pump up numbers in ways that look fine right up until they do not.
- Useful Life Extensions: Several AI and cloud companies recently decided that their servers and data center equipment will last longer than they previously thought. In practice this means they get to report higher earnings because the depreciation expense shrinks. Nothing about the hardware changed. No magical self-healing servers. Just an updated assumption that conveniently boosts profits. Analysts call it an “accounting tailwind.”
Yes, this all sounds concerning. However, when pressed most economists and investment analysts will tell you we’re not in an AI bubble. The demand is very real, the revenue is very real, and the growth is very real. But they’ll also tell you that a very small group of companies is doing an unhealthy amount of heavy lifting in the market. When too much depends on too few, that screams risk.
Which brings us to a far more important question for actual investors: how do you get the benefits of AI without accidentally turning your portfolio into an AI themed investment fund?
Here are three ways we and SEI are thinking about this right now.
- Look to international markets where valuations are more reasonable. SEI has positioned portfolios to benefit from opportunities outside the US, where the AI concentration is less extreme.
- Shift toward value-oriented investments. Value stocks often trade at lower multiples and provide a counterbalance to the growth-heavy AI trade.
- Diversify with the boring stuff that works. High credit-rated bonds, inflation protection, and gold keep the portfolio grounded while AI does its thing.
All of this does not mean you should run from the markets right now. The goal is simple: participate thoughtfully and avoid the concentration traps that have tripped up past generations of investors as best we can. It’s normal to feel uneasy and wonder when the other shoe will drop in times like this. We are always here to talk through any and all concerns, no matter how small they feel. Just let us know.
jared