Research @ Citi Markets Edition: AI – No Bubble, Yet
Oct 28, 2025
Drew Pettit, a U.S. Equity Strategy expert at Citi Research, joins Scott T. Chronert to discuss the current state of AI in U.S. equities. They clarify the traditional definition of a market bubble and highlight why today's climate differs from the late 90s. Key topics include the importance of cash flow from mega-cap firms in funding AI growth and contrasting valuation signals that indicate stability rather than a bubble. Drew also shares insights on investing in AI stocks at reasonable prices, emphasizing the need for fundamental persistence.
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Funding And Cash Flow Distinguish Today's Tech
- The 1990s tech bubble differed because many firms lacked near-term cash flow and relied on IPO/debt funding.
- Today, large AI-capable mega caps generate free cash and can self-fund AI CapEx, reducing classic bubble risk.
Valuation Disconnect Is Much Smaller Than 1990s
- Valuation metrics for AI names are elevated but lack the extreme disconnection seen in the late 1990s.
- Few AI firms are negative earners and consensus growth expectations align more with market pricing today.
Monitor Market Pricing Of Future Growth
- Watch the single red flag: how much market value prices in growth above economy-wide growth.
- Monitor that exposure as the main valuation risk for AI stocks rather than broad bubble signals.