AI is still the stock market’s engine. 

Over the past year, we’ve seen the S&P 500 notch fresh highs as chip deals, larger data-center plans, and novel model launches draw money back into familiar names. It’s like every new headline has tightened the link between AI spending and index performance.

However, the wobble following President Trump’s China tariff comments on Friday, Oct. 10, briefly cracked that story. Investors zoomed out and questioned whether the AI-powered rally had gone too far. The Monday, Oct 13 tape showed that the momentum may have bent, but it hasn’t broken.

That sets the stage for a completely different signal, with a seasoned chip leader weighing in. Former Intel (INTC) CEO Pat Gelsinger, now a VC operator, just delivered a crisp assessment of where AI sits in the cycle.

Gelsinger was CEO of VMWare and EMC prior to becoming Intel’s CEO, and served as Intel’s Chief Technology Officer from 2001 to 2009, when the Internet bubble burst and the Great Recession rocked technology companies. His deep experience makes his read pertinent, providing a roadmap for AI investors to assess what keeps the rally intact, what could stall it, and separating durable earnings from narrative heat.

Pat Gelsinger doesn’t mince words in saying ‘of course’ we’re in an AI bubble

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Ex-Intel chief Pat Gelsinger summed up the AI frenzy in just two words

Former Intel CEO Pat Gelsinger didn’t mince words when quizzed on whether the world is in an AI bubble. His two-word reply on CNBC, “Of course,” effectively cut through months of hype and mind-boggling valuations.

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“We’re hyped. We’re accelerating. We’re putting enormous leverage into the system,” Gelsinger said, noting that AI’s frenzy mirrors past tech cycles, only faster and bigger.

Related: Major analyst drops 5-word take on market pullback

Gelsinger argued that the bubble isn’t bursting yet, though. “I don’t see it ending for several years,” he said, adding that enterprises are still in the early innings in understanding the true potential of AI. In his view, the AI sector is overextended but underdeveloped at the same time, which is a puzzling coexistence that defines every major inflection in tech.

“We’re displacing all of the Internet and service provider industries as we think about it today. We have a long way to go.”

Pat Gelsinger.

Gelsinger also defended U.S. industrial policy, saying the CHIPS Act only works “if it causes the building and filling of fabs.” Additionally, in praising Intel’s progress with its 18A process, he also questioned the Commerce Department’s slow rollout of funds under Secretary Gina Raimondo.

Quick Takeaways:

  • Blunt reality check: Former Intel CEO Pat Gelsinger says “of course” we’re in an AI bubble, on the back of the sector’s runaway hype and leverage buildup.
  • Not over yet: Gelsinger feels the boom could last for years as AI adoption and productivity gains remain in the early stages.
  • Policy and execution matter: He warns that U.S. industrial success hinges on actually “building and filling fabs,” despite the help from soaring chip valuations.

AI trade keeps powering Wall Street’s record run

AI continues to anchor the stock market this year, as it has for the past couple of years.

The S&P 500 has surged nearly 14% to 15% year-to-date through mid-October, with every new high fueled by AI headlines. 

Related: Palantir rival quietly builds a big business

Leadership, however, has become increasingly concentrated. The top 10 S&P 500 names account for almost 39% of the index, a record mainly due to the Magnificent 7 stocks: Nvidia, Microsoft, Apple, Amazon, Meta, Alphabet, and Broadcom.

Nvidia’s $4.6 trillion valuation alone captures the incredible scale of that trade. Since ChatGPT’s debut in late 2022, AI infrastructure players have driven 75% of S&P gains, 80% of earnings growth, and 90% of capital expenditure expansion, according to Morgan Stanley.

Bulls argue AI can still drive the market to new highs, led by robust earnings and spending trends.

Goldman Sachs attributes superior earnings growth among the leading mega-cap AI companies as the key driver for outperformance. Similarly, UBS predicts an AI capital expenditure (capex) supercycle that could reach approximately $375 billion in 2025 and $500 billion in 2026, as hyperscalers and “neo-cloud” players like CoreWeave expand their compute capacity. 

Stock market bears counter with valuation risk and capex cyclicality, arguing that the $100 billion-plus spending jumps could easily reverse course if utilization stalls, macro conditions tighten, and grid bottlenecks choke AI growth.

Analysts believe that AI remains a multi-year growth engine. 

Goldman Sachs estimates that generative AI can increase productivity by about 1.5 percentage points per year following peak adoption, while raising overall output by nearly 15% in developed markets. Morgan Stanley also expects hyperscaler capex to exceed $300 billion in 2025, with spending expected to remain strong, although in the “later innings.” 

IDCprojects that AI infrastructure investments will top a whopping $200 billion by 2028, with GPUs accounting for over 75% of server spending. Similarly, the IEA expects data-center power demand to double to a head-turning 945 TWh by 2030.

Related: Nvidia-backed AI stock’s monster run gets CoreWeave jolt