As the artificial intelligence (AI) revolution accelerates, concerns of an overheated and unsustainable “bubble” in technology stocks have become widespread among financial commentators. Yet, some of the world’s most prominent technology investment managers assert that nervousness may be premature and overstated. They argue today’s AI landscape mirrors the innovation-driven boom of the mid-1990s more than the speculative frenzy that triggered the 2000 dotcom bust.

Steady Gains Amid Volatility

The US Nasdaq technology index, a bellwether for investor sentiment, recently dipped by 2.5% after months of strong gains, standing over 9% higher for the year. This comes after a remarkable 31% surge in 2024. In this context, fund managers at Polar Capital Technology (PCT) and Manchester and London (MNL) trusts have downplayed the risk of a systemic bubble, even as they acknowledge that volatility is likely to persist in tech markets, particularly as large-cap AI companies dominate headlines.

Debating AI Hype: Constructive Optimism or Overexcitement?

High-profile voices have added fuel to the debate. Sam Altman, founder of OpenAI, recently suggested that some AI investors may be “overexcited,” drawing a parallel to the Internet mania of the 1990s that preceded the infamous tech downturn. A recent report from Massachusetts Institute of Technology amplified concerns, finding that 95% of corporate AI projects are yet to generate meaningful returns.

Mark Sheppard, manager of the £341 million AI-focused Manchester and London investment trust, dismissed the MIT report as limited and unrepresentative, though he highlighted some instructive insights:

• Companies are about twice as successful purchasing AI tools from vendors (67% success) than building in-house (33%), underscoring the value of specialist partners.
• Many firms are overspending on sales and marketing AI, rather than focusing on back-office automation, which offers greater cost savings and productivity benefits.

Meanwhile, managers Ben Rogoff and Alastair Unwin of the £5 billion Polar Capital Technology Trust offer a more bullish stance. In their latest update, they point to tangible impacts on revenues and costs—such as Meta’s AI initiatives lifting ad conversions on Instagram by 5% and on Facebook by 3%, and boosting user engagement by 6% and 5%, respectively, in Q2 2025.

Microsoft, a heavyweight AI adopter, cut over $500 million in call centre costs while enhancing user satisfaction last year. These real-world efficiencies challenge the bubble narrative and indicate strong commercial momentum for AI tools.

AI – The Next Era-Defining Innovation?

Recent academic and policy analysis bolsters the optimism. A pivotal paper from the US Federal Reserve categorizes generative AI as a general-purpose technology (GPT)—a class that historically drives sweeping productivity gains and economic expansion, akin to the impact of electricity or the internet. The Fed notes AI’s potential to serve as an “invention of methods of invention” (IMI), with effects extending deep into societal and business transformation.

The Congressional Budget Office has also identified AI-driven productivity growth as a possible counterweight to the US’s long-term fiscal challenges—suggesting that the sector’s gains go well beyond hyped headlines or speculative trading.

Earnings Results Reinforce Confidence

Second-quarter 2025 earnings have largely borne out optimistic forecasts, especially among key US and global tech leaders. According to Polar Capital’s analysts:

• Alphabet (Google’s parent) met lofty expectations, maintaining its significant AI momentum.
• Meta delivered a 22% revenue increase, beating consensus estimates and reflecting substantial payback from AI-related investment.
• Microsoft posted robust results, buoyed by its enterprise AI tools and cloud growth.
• Amazon turned in a somewhat mixed performance, with its web services growth lagging amid questions over its AI strategy.

Sheppard of MNL cited remarkable, AI-driven, “forecast-busting” results among stocks like Arista Networks (cloud infrastructure), Advanced Micro Devices (semiconductors), and Robinhood (fintech platform). His trust rose by 21% in July after positive US-Japan tariff and trade news further buoyed the sector.

Valuations: Growth at a Reasonable Price?

While some critics warn that surging valuations evoke the dotcom mania, Sheppard contends that the AI sector today offers robust returns relative to its pricing. The Manchester and London trust has an eye-popping 41% weighting in Nvidia, currently valued over $4.3 trillion, while PCT holds 12.5% in the same chipmaker. MNL’s portfolio, he notes, boasts average annual sales growth of 15% and earnings growth over 18%, with enterprise value at 19 times forecast earnings—figures he claims represent “growth at a reasonable price.”

These numbers compare favourably to the wild, zero-earnings speculation that characterized the late-1990s bubble, suggesting a more grounded investment thesis underpins today’s AI-led rally.

Cycle Volatility: History Lessons and Forward Outlook

PCT’s Rogoff and Unwin stress that current market conditions closely echo the mid-1990s, when global digital infrastructure was being rapidly built. Then, equity indices like the Nasdaq experienced several 15%+ drawdowns amidst an overall upward trend—mirroring the current cycle’s volatility. The managers warn investors to expect continued turbulence, given that tech valuations are back near post-GFC highs.

Yet, they argue, volatility is inherent in disruptive innovation cycles, and portfolio hedging (e.g., using put options) can protect against sharp corrections. For now, both managers agree: AI’s status as the next general-purpose technology means the sector’s full investment opportunity has not yet been fully recognized or priced in by markets.

Trust Performance and Market Position

Shares in both PCT and MNL trusts slipped 3–4% in the past week—a minor setback compared to impressive five-year returns. As of July 2025, MNL delivered a 72.4% total return to shareholders over five years, while PCT returned 106.5%. By comparison, the Dow Jones Global Technology Index, led by big names like Nvidia and other “Magnificent Seven” stocks, produced an even higher 133.5% five-year return.

PCT currently trades at an 8% discount to net asset value, while MNL sits at a 15% discount, reflecting cautious investor sentiment amid ongoing market volatility but also presenting possible buying opportunities for long-term believers in AI-led innovation.

Conclusion: AI Hype or Structural Growth?

As AI momentum continues to captivate markets, leading tech fund managers urge investors to look beyond near-term volatility and media-fueled speculation. With strong evidence of productivity gains, healthy corporate earnings, and valuations supported by real growth, the current AI surge appears to be more substance than bubble—echoing the lasting transformation ushered in by the internet during the 1990s.