Recent bubbles
The artificial intelligence (AI) boom, or bubble, has captured so much investor attention that many have forgotten how many bubbles we’ve seen in the last decade.
And whether it was sudden liquidity shifts, low interest rates, technological enthusiasm, or structural market changes, these factors consistently combined to feed speculation and inflate asset markets.
When cheap capital or social euphoria flows faster than underlying fundamental earnings, valuations detach from reality. Most importantly, regardless of what drives the enthusiasm, whether it’s decentralised digital assets or meme stocks, each cycle saw valuations peak, and markets eventually corrected.
Cryptocurrency & Decentralised Finance (DeFi) (2017–2021, 2024–2026)
It is useful to know the cryptocurrency landscape experienced two distinct speculative waves. The first, between 2017 and 2018, was driven primarily by Initial Coin Offerings (ICOs), in which early-stage crypto startups raised billions by selling unregistered digital tokens directly to global retail investors.
The second wave, between 2020–2021, was marked by enthusiasm for Decentralised Finance (DeFi) protocols such as Uniswap and Aave, non-fungible tokens (NFTs) popularised by collections like Bored Ape Yacht Club and trading platforms like OpenSea, as well as mega-cap digital assets like Bitcoin (BTC) and Ethereum (ETH).
As the ecosystem matured between 2024 and 2026, the sector moved toward traditional finance through spot Bitcoin and Ethereum ETFs, institutional yield strategies, and widespread stablecoin infrastructure, sparking another speculative cycle.
Looking back, the initial 2017 wave was powered by surging global retail enthusiasm amid persistently low interest rates. The much larger 2020–2021 expansion, during COVID19, was fueled by unprecedented fiscal pandemic stimulus and record-low central bank interest rates worldwide.
Equally unprecedented levels of central bank liquidity also flooded financial markets, driving yield-seeking investors directly into high-beta assets and complex, automated DeFi lending mechanisms.
Eventually, and somewhat inevitably, this liquidity-driven market unravelled in 2022 when central banks led by the Federal Reserve raised rates. Rising interest rates combined with structural leverage unwinding across the digital asset space triggered a systemic collapse, marked by the failure of the Terra/Luna (LUNA) algorithmic stablecoin ecosystem, major lenders like Celsius and BlockFi, and the high-profile bankruptcy of the FTX exchange, wiping out over US$2 trillion in digital asset market capitalisation in just a few months.
Marijuana Stocks (2018–2019)
After Canada passed its Cannabis Act in 2018, public markets again experienced a rush of speculative capital, this time aimed at commercial growers and distributors.
Early market entrants and Canadian Licensed Producers (LPs), notably Canopy Growth Corporation (CGC), Tilray (TLRY), and Aurora Cannabis (ACB), quickly became the focus for global investors. Share prices soared on the assumption that North American legalisation would rapidly open gigantic new consumer markets and drive booming earnings.
Market valuations were stretched further when major consumer packaged goods conglomerates made strategic investments, validating investors’ earlier bets. Constellation Brands, was just one example, with the company pouring US$4 billion into Canopy Growth to secure early exposure.
If this is starting to sound a little like today’s AI infrastructure buildout, with NVIDA making strategic investments in its customers, read on.
The cannabis bubble deflated quickly when investor enthusiasm met with structural market realities. Even though cannabis was now legal in Canada, municipal licensing bottlenecks, limited retail storefront deployments, complex supply chain friction, and persistent price undercutting by established illicit distribution networks were also a reality.
That’s not unlike the bottlenecks confronting today’s AI buildout. Licensing data centres locally, limited retail subscription uptake, complex supply chain challenges including power and water, and price undercutting by open source and Chinese AI models are all realities today’s AI bulls must confront.
And just like today, Cannabis producers in 2019 completed massive, capital-intensive facility expansions that generated huge inventory gluts without corresponding sales. What happened next was that quarterly financial reports repeatedly disappointed Wall Street, leading to a multi-year liquidation that destroyed tens of billions of dollars.
SPACs (2020–2022)
Special Purpose Acquisition Companies (SPACs), non-operating shell companies created to raise public capital and merge with private businesses, were seen as a transformative innovation in early-stage corporate financing during the pandemic.
Celebrities, prominent hedge fund managers, and venture capitalists launched hundreds of these vehicles to bring pre-revenue electric vehicle manufacturers, space tourism operators, and speculative technology startups directly to public exchanges while bypassing traditional initial public offering (IPO) underwriting.
Famous or infamous companies that defined this boom included hydrogen truck maker Nikola Motor (NKLA), luxury electric automakers like Lucid Group (LCID), and commercial space flight enterprise Virgin Galactic (SPCE).
With interest rates near zero, record market liquidity, and unique regulatory exemptions, the unprecedented popularity of the SPAC structure was driven in 2020 and 2021.
Unlike a traditional IPO, federal securities regulations permitted SPAC target companies to publish long-term financial forecasts that painted rosy pictures of future profitability without historical operating records.
Zero interest rates also invited a wave of speculative capital into ideas that were years away from generating positive cash flow.
The mania collapsed in 2022 under tightened regulatory scrutiny and surging interest rates. The U.S. Securities and Exchange Commission signalled tighter oversight on forward-looking growth claims, while rising central bank interest rates eliminated the easy liquidity that these cash-burning target companies required to fund their operations.
Unsurprisingly, post-merger share prices spiralled.
Next-Gen Tech & ARKK (2020–2021)
Symbolised by Cathie Wood’s flagship ARK Innovation ETF (ARKK), this speculative wave concentrated heavily on unprofitable, hyper-growth companies in popular sectors like remote work platforms, software-as-a-service (SaaS), telehealth services, and e-commerce infrastructure.
Beneficiaries of the enthusiasm included, video communications platform Zoom (), connected fitness hardware maker Peloton Interactive (PTON), virtual health provider Teladoc Health (TDOC), and streaming platform Roku (ROKU).
The pandemic-driven stay-at-home mandate, alongside zero interest rates, triggered a swift boom in the use of digital connectivity tools in 2020.
As they do every time, analysts extrapolated into the future. This time, analysts projected emergency lockdown adoption curves decades into the future, without interruption, sending earnings multiples to historically unprecedented levels.
Enterprise-value-to-revenue ratios routinely surpassed 50 times and 100 times as cheap liquidity encouraged long-duration asset speculation.
As economic reopenings throughout late 2021 flattened corporate growth projections, the inevitable unwind was swift.
And when the U.S. Federal Reserve embarked on its aggressive interest rate hiking cycle in early 2022, the discount rate applied to long-dated earnings jumped sharply, forcing a dramatic valuation compression across unprofitable tech companies.
Meme Stocks (2021–2026)
When retail trading ‘gangs’ assembled on social platforms like Discord and Reddit’s r/wallstreetbets, for the sole purpose of driving up the stock prices of heavily shorted companies, the hedge funds on the other side of the transaction never had a chance.
Millions of individual market participants banded together to purchase shares in legacy brick-and-mortar businesses such as video game retailer GameStop (GME), movie theater operator AMC Entertainment (AMC), and struggling home-goods retailer Bed Bath & Beyond (BBBY).
The meme stock phenomenon emerged from a unique convergence of structural trading shifts, technology accessibility, and the economic conditions of early 2021.
Widespread adoption of zero-commission, mobile-based brokerages like Robinhood, fractional-share investing, direct government stimulus payments during the pandemic, and lockdown leisure time allowed retail traders to build large, well-funded trading groups capable of wielding market power.
By targeting stocks where institutional short interest exceeded total ‘floating’ shares and executing leveraged call option strategies, retail traders created forced ‘gamma’ and short squeezes, compelling institutional market makers and short sellers to continuously buy underlying shares to hedge their positions regardless of valuation.
The momentum stalled when major clearinghouses forced retail brokers to temporarily restrict buy orders on highly volatile equities due to unprecedented capital requirements.
Artificial Intelligence (2022–2026)
Following the public release of ChatGPT in 2022, global capital pivoted rapidly towards AI-linked hardware supply chains, semiconductor designers, specialised data centre power infrastructure, and thermal cooling solutions. The biggest beneficiaries of this corporate investment included graphics processing unit pioneer NVIDIA (NVDA), high-performance server manufacturer Super Micro Computer (SMCI), custom chip designer Broadcom (AVGO), and the utility firms providing the power for the next-generation, high-density computing facilities.
This spending cycle is an intense technological race among major hyperscale technology platforms – including Microsoft, Alphabet, Meta, and Amazon – to acquire specialised compute infrastructure and construct massive data centre clusters to train foundation models.
Massive demand outstripped immediate silicon manufacturing capacity, giving key hardware suppliers pricing power and driving rapid revenue growth.
Right now, however, market discussions have shifted to a debate over multi-year monetisation timelines for software end-users relative to the trillions earmarked for hardware infrastructure.
Questions regarding hyperscaler capital expenditure sustainability, data centre electrical grid bottlenecks, and potential supply overcapacity are variously triggering valuation reassessments and periodic volatility.
Market manias and implications for the AI supercycle
Market manias follow a remarkably consistent script regardless of the underlying narrative.
Each boom, irrespective of whether it was powered by decentralised networks, post-pandemic euphoria, blank-check corporate shells, lockdown-driven software demand, or social-media-fueled retail squeezes, has been accompanied by a legitimate shift in technology, regulation, or consumer behaviour.
Market prices however inevitably detach from economic and physical realities when liquidity – namely zero-interest-rate policies, central bank asset purchases, and aggressive fiscal expansion – floods the financial system.
Cheap capital always compresses discount rates, incentivises speculation, and breeds a collective suspension of belief that gravity is real.
Each historical example shows that whether it’s a structural bottleneck, a revenue shortfall, or shifting central bank priorities, they eventually cause an uncompromising mean reversion.
History, therefore, offers useful lessons for the current AI infrastructure supercycle. Unlike pre-revenue Special Purpose Acquisition Companies (SPACs) or pure retail sentiment manias, the AI boom is clinging to monumental capital expenditure commitments from the world’s highest-earning hyperscale corporations, backed by tangible compute demand and genuine technological breakthroughs.
But the market also shows classic indicators of a late-stage speculative cycle.
An increasing number of investors are acknowledging that the gap between hyperscaler infrastructure spending and payback prospects is widening. At a minimum it mirrors the overcapacity dynamics seen in the late-1990s telecom buildout and the 2018 Canadian cannabis expansion.
And then there’s the private-market valuations for frontier AI model developers and the vendor-financing loops between chipmakers, cloud platforms, and AI startups, which closely mirror the circular capital flows seen during previous market tops.
Ultimately, the lesson of all these recent market bubbles is not that transformative technologies are illusory, but that investors routinely and repeatedly price decades of anticipated future adoption into a matter of months. This sets them up for disappointment.
While AI will undoubtedly continue to reshape corporate productivity and global software infrastructure, investors need to separate the transformational tech from market valuation. A good business bought at too high a price will become a poor investment.
If corporate return on investment (ROI) timelines stall or capex budgets tighten under economic, monetary, or liquidity pressure, even the founders of the AI economy will face the same valuation re-ratings that brought down every major speculative theme before them.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
