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AI Stocks on a Tilt: Retail Buying Sparks Bubble-Like Concerns, Says McKinsey's Tim Koller

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  Published in Stocks and Investing on Sunday, December 7th 2025 at 22:09 GMT by moneycontrol.com

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AI Stocks on a Tilt: Retail Buying Sparks Bubble‑Like Concerns, Says McKinsey’s Tim Koller

The stock market’s newest hot commodity is artificial intelligence (AI), and the surge is being driven almost entirely by a wave of retail investors. In a Moneycontrol.com feature that pulls data from the latest market statistics, analyst Tim Koller—chief economist at McKinsey & Company—warns that the rally shows clear “bubble‑like” characteristics. His comments come amid a flurry of headlines that link the rise of AI names to the explosive popularity of generative models such as ChatGPT, and a growing sense that valuations may be outpacing fundamentals.

Retail Buying Is the Engine Behind the Rally

According to the Moneycontrol article, AI‑related shares have jumped nearly 40 % in the past month alone, with a particularly sharp uptick in the last two weeks. The key driver of that momentum, Koller points out, is retail buying. Trading data from exchanges indicate that retail traders now account for an estimated 45 % of total volume in AI‑heavy sectors—up from roughly 30 % before the “ChatGPT effect.” This surge is largely driven by the proliferation of commission‑free trading apps and the “meme‑stock” culture that has become normalized among younger investors.

Koller’s observation is supported by a link in the article to a recent McKinsey report titled “AI in the 2024 Market Landscape,” which notes that retail investors are “actively reallocating portfolios toward high‑growth tech names that promise AI‑driven returns.” The report also highlights that AI stocks have a higher beta than the broader market, amplifying both upside potential and downside risk.

Valuation Levels That Seem Out of Place

The core of Koller’s cautionary message lies in the valuation multiples that have become commonplace in AI stocks. The Moneycontrol article cites a comparison between the P/E (price‑to‑earnings) multiples of AI firms versus traditional tech giants. While names like Microsoft and Alphabet still carry lofty multiples—around 30× and 28× respectively—many newer AI specialists such as Cohere, OpenAI, and others are trading at 70× or higher, despite low or negative earnings.

Koller writes: “The market is pricing in a future that, to the untrained eye, seems too good to be true. The valuation multiples we’re seeing in AI are reminiscent of the late‑2000s housing boom or the 2015‑2017 cryptocurrency frenzy.” The article further notes that the “earnings trajectory” for most AI companies is still uncertain; many are yet to post sustainable profits, relying instead on a “growth‑over‑profit” narrative that can be fragile if the expected revenue streams don’t materialize.

The “Bubble” Narrative: Not Just a New Trend

The article references an earlier Moneycontrol piece—“AI Stocks: The New Bubble? A Look at Market Psychology”—that argues the recent rally follows classic bubble‑behavior patterns. In that piece, market psychologists point to the rapid rise in price, widening spreads, and the growing presence of speculative sentiment in earnings forecasts. Koller’s view echoes these warnings: he argues that the “excessive optimism” surrounding AI’s potential to overhaul industries could lead to an over‑valuation, especially when compounded by the emotional pull of retail participation.

A key point from the McKinsey report is that AI’s projected contribution to global GDP—estimated at 10 % by 2030—does not translate immediately into earnings for the companies that claim to be “AI‑first.” Thus, investors are essentially betting on future market capture rather than current financial health. Koller stresses that “the path to profitability for many of these firms is not yet mapped, and it’s a long way from the data we see today.”

Historical Precedents and Market Comparisons

The article draws parallels with previous tech bubbles, notably the dot‑com era of the late 1990s and the AI hype of the 1980s. It highlights how during those times, valuations were driven by speculative narratives and a lack of rigorous financial scrutiny. Koller notes that in both cases, the market ultimately corrected when the underlying business models failed to deliver expected returns.

Another angle the article takes is to compare AI to other high‑growth sectors such as renewable energy and biotechnology. While those industries also face valuation pressures, they tend to have more mature revenue streams and clearer pathways to profitability. “AI is still a relatively new and untested paradigm, which makes it riskier for retail investors who are chasing high‑flying numbers,” Koller points out.

What Retail Investors Need to Know

Given the context presented in the Moneycontrol article, several take‑away points for retail investors emerge:

1. Diversification is Key – Relying on a single or a handful of AI names can expose investors to higher volatility. A broader portfolio that includes diversified tech, non‑tech, and defensive stocks can mitigate risk.

2. Beware of “Growth‑over‑Profit” Narratives – Many AI companies are still operating at a loss. If their growth projections are not realized, valuations can plummet.

3. Watch the Multiples – High P/E ratios are a red flag. Investors should compare current multiples to historical averages for similar firms and be cautious if the numbers appear inflated.

4. Consider the Macro Context – Economic indicators such as interest rates, inflation, and geopolitical tensions can amplify volatility in high‑growth sectors.

5. Follow Expert Analysis – Keep an eye on research from firms like McKinsey, Bloomberg, and academic institutions that regularly publish AI market studies.

The article concludes by underscoring that while AI undoubtedly represents a transformative force, the present market conditions may resemble a “bubble in the making.” Investors, especially retail ones, should exercise prudence, weigh fundamentals against hype, and stay alert to the signs of a potential correction.

The Bottom Line

In a rapidly evolving tech landscape, AI stocks are attracting unprecedented retail interest, fuelling a rally that experts like Tim Koller describe as bubble‑like. Valuations are soaring to levels rarely seen in modern markets, driven by optimistic forecasts that may not yet be grounded in tangible earnings. While the future of AI is undeniably promising, the current market dynamics—high multiples, speculative sentiment, and an outsized role for retail traders—suggest that a cautionary approach is warranted. As the Moneycontrol piece reminds us, history has shown that hype‑driven booms often end in corrections, and investors must be prepared for that possibility.