Coatue Management, a US-based investment management firm, released a Public Markets Update report recently, addressing whether the AI market is in a bubble.
The firm presents a bullish case, stating that AI represents essential infrastructure investment backed by $150 billion in current revenues and unprecedented adoption rates that justify capital expenditure surges.
This contradicts the sentiments of market experts, who have cited multiple bubble indicators acknowledged by Coatue.
The key arguments today are that the concentration of the top 10 companies matches the dot-com levels of 2000, and AI-related capital expenditure hit 1.5% of GDP and continues to rise.
Besides, vendor financing appears circular. Companies like NVIDIA effectively fund their own future sales by investing in OpenAI, which commits spend to Oracle, which, in turn, buys NVIDIA hardware.
Several reports claim AI adoption among enterprises is slow, with few tangible benefits or profits.
However, Coatue counters these arguments with data. On capital expenditure, the firm noted that the top 10 tech companies generate approximately $1 trillion in annual free cash flow before capex. Unlike previous infrastructure booms requiring government funding or debt, this investment comes from private sector cash reserves.
Philippe Laffont, founder of Coatue Management, linked AI investment to historically beneficial infrastructure.
“These are some of the big infrastructure spends that we’ve had in the US, whether it’s been the phone network, electrification, cars, the dams, the interstate highway, the internet, the personal computer, mobile internet….(sic),” he stated in a video explaining the report.
Source: Coatue
The valuation argument weakens under scrutiny.
The Nasdaq-100 next twelve months (NTM) price-to-earnings (P/E) multiple in 2025 stands at 28x, compared to 89x in 1999. This indicates a more reasonable valuation, rather than wild overpricing like the dot-com bubble.
Besides, today’s top tech companies trade at 28x forward earnings, down from 67x in 1999.
This means while tech stocks are still considered expensive, investors are paying far less relative to the companies’ profits than they did during the dot-com bubble— when prices were driven more by hype than actual earnings.
Source: Coatue
Moreover, equity issuances (IPOs and secondary offerings) in 2025 stand at 56, sharply down from the 511 peak during the 2000 bubble, thereby suggesting that the companies are not rushing to go public recklessly.
However, margin debt in US brokerage accounts reached 3.7% of the US GDP, near the 3.8% pandemic peak and close to the 3.0% level in 2000. This shows that individual investors are borrowing heavily, which could cause big losses if markets drop.
Addressing the adoption concerns, Coatue stated that ChatGPT reached nearly one billion (~800 million) users faster than any technology in history, comparing favourably to Internet and PC adoption. Moreover, private AI startups with valuations exceeding $5 billion or $10 billion are rising.
Even in terms of steady revenue, AI startups like Cursor have crossed $500 million in ARR, up from $300 million between mid-April and early June 2025.
Source: Coatue
While numerous reports state enterprises aren’t yielding results from AI, several non-tech companies show real efficiency gains.
As per the report, logistics company CH Robinson saw a 50% productivity improvement and approximately 30% headcount reduction, while Rocket Mortgage in financial services saved over six times more underwriting hours and achieved more than $40 million in annual run-rate cost savings.
This proves that AI delivers tangible value for several non-tech companies as well.
In addition, Coatue draws parallels to Microsoft’s cloud business, which took six years to become profitable but now generates high returns.
From a -7% return on investment capital (ROIC) in 2014, Azure reached 6% ROIC in 2018 and 33% in 2023. “Cloud didn’t make money immediately, and today, the two most valuable businesses are Amazon and Microsoft,” Laffont stated.
This article is for informational purposes only and does not constitute investment advice. All graphs, numbers, and images are sourced from Coatue’s report, which is publicly accessible here.
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