My Issue With the Tech Sector

This is a purely opinion-based take on the state of the market. I’d love to hear your thoughts in the comments!

I have a problem with Big Tech. Since the start of 2025, we’ve seen an exponential surge in AI-focused capital expenditures as companies race to capitalize on the biggest technological shift since the dot-com era. AI is genuinely captivating, but the market’s current behavior needs a serious unpacking.

This Isn’t 2000 (But It’s Still Weird)

First, let’s address the “bubble” narrative. While there have been many comparisons to the dot-com era, what we’re seeing today is fundamentally different. The dot-com collapse was fueled by scores of startups receiving outrageously high valuations that evaporated when the music stopped. Today, we’re talking about the most profitable companies in history, like the Magnificent Seven. These businesses were immensely profitable and successful long before AI. If the AI train crashed and burned tomorrow, they’d take a hit, but still survive.

However, that doesn’t mean we aren’t seeing “bubble-like” behavior. For a long time, the market ignored CapEx, cash flows, and unit economics. The only question was “Are you an AI company?” However, we’ve seen some recent recalibration as pullbacks in $AMZN, $META, and $ORCL reflect growing concern over how AI spending is weighing on cash flows. Yet, the mentality hasn’t fully disappeared. Allbirds, a shoe company that rebranded as an AI company, saw its stock jump 600% overnight with zero proven capabilities to justify it.

The Valuation Double Standard

This brings me to the core issue: the valuation hypocrisy. Currently, no one has a profitable business model for consumer-facing AI. Google is losing money on Gemini, Anthropic is doing the same with Claude, and OpenAI has the highest cash burn in startup history (on track to lose $14-17B this year alone).

Despite reports of missed revenue and user targets, OpenAI is still on track for one of the highest IPO valuations ever based on a promise of profitability by 2030. Meanwhile, the market tanks Meta’s stock after record-breaking earnings across the board, simply because investors are spooked by CapEx.

The CapEx issue is most definitely concerning, especially given the current lack in AI profitability, but my point is that you can’t have it both ways. It makes zero sense to assign an extreme valuation to OpenAI, which has yet to prove its model, while punishing Meta, which is producing tangible results.

Beyond that, a company like Google, Amazon, Meta, etc., can cover their AI losses with other business areas. They can also integrate AI into their other services to increase efficiency and profitability (ex.: Gemini with Google’s Ad Services). But OpenAI has… nothing? There’s ChatGPT, a highly unprofitable AI, and no other services. For me, this furthers the issue surrounding how we treat these companies as investors.

What’s worse is that the real issue isn’t even about OpenAI. It’s not that they’re not profitable, it’s that quite literally no one is. No company has cracked the code yet, and I personally can’t put a safe bet on OpenAI being first.

The Nvidia Paradox

This detachment from reality also extends to the largest company in the world: Nvidia. The company’s long-term revenue guidance is over $1T, yet investors won’t let the stock break the $200 resistance level. While $1T is an outrageous figure, Nvidia has consistently outperformed every piece of guidance they’ve ever given. So why has the stock been stuck for 8 months?

Yes, there’s the issue of vertical integration of chips from customers that could potentially hurt the company’s revenue and margins. But that doesn’t change the fact that they’re the most dominant AI player in the world. Vertical integration won’t change the company overnight. And even with this risk, hyperscalers are continuously increasing their order sizes. Beyond that, replicating Nvidia’s scale will take years. The threat is real, but the timeline is misrepresented. We’re overweighing a very long-term possibility threatening their moat and underweighing near-term record-breaking exponential growth.

I’m not saying the stock should be jumping every week. I’m saying that there’s a real logic gap when comparing either its performance or investor sentiment surrounding it to other companies. This is also supported by their forward P/E, which is 24.45x according to Yahoo Finance. For the growth we’re seeing from the company, this is extremely cheap, proving some level of irrationality.

This leads me to believe that the market is becoming increasingly detached from fundamentals. We’re pricing in a long-term risk to Nvidia now, while giving OpenAI a decade-long timeline.

The Bottom Line

The market has never been perfect, but the current TMT environment exposes something more systemic: we’ve lost a shared framework for valuing AI companies. When the same investors punish Meta for spending and reward OpenAI for promising, and discount Nvidia’s near-term dominance while pricing in its long-term risks, it suggests sentiment has fully decoupled from fundamentals. Until the industry produces a genuinely profitable AI business model, that disconnect is only going to widen.

For me personally, that makes TMT a difficult place to invest with conviction right now. Sectors like Consumer & Retail or Industrials aren’t immune to irrationality, but their valuations are still tethered to something tangible. In TMT, the rules feel made up. And when the rules feel made up, the smart move might be to find a different game.

I would love to hear other nuanced perspectives (both rebuttals and agreements) in the comments. Let me know your thoughts!

Disclaimer:

This blog post is for educational and informational purposes only. It is not financial advice. I am not a licensed financial advisor, and nothing in this post should be interpreted as a recommendation to buy or sell any securities. Trading involves risk, and results are not guaranteed. Past performance is not indicative of future results. Always do your own research and consult with a licensed financial professional before making any investment decisions.