The AI Bubble Deflates: NASDAQ Down to 29 P/E Ratio

The NASDAQ index continues to trade at a dizzying 29 times earnings, driven by a frenzy around artificial intelligence. But beneath this dazzling valuation lies a new reality: central banks, traditionally guardians of financial stability, have become major speculators, accumulating billions in stocks like Facebook, Apple, and Microsoft. With parallels to the infamous dot-com bubble haunting the market, investors worldwide must brace themselves for the conflict between speculative optimism and historical prudence, especially as allies across the world turn on the U.S.

Tech Mania Matures: Central Banks vs. Reality

Global central banks, previously disciplined institutions, have defied conventional wisdom by pouring unprecedented sums into the volatile tech sector over the past ten years. Consider the Swiss National Bank (SNB): by late 2024, it held nearly $200 billion in U.S. equities, prominently featuring tech giants such as Apple, Alphabet, Microsoft, and Meta. This move dwarfs their previous holdings during the dot-com era, indicating a shift towards speculative market participation on an unprecedented scale. Will nation states like Switzerland remain faithful to US equities or search elsewhere for growth?

Historical Echoes: Dot-Com and AI Parallels

Flashback to March 2000: the NASDAQ peaked at a staggering P/E ratio above 40, fueled by similarly euphoric expectations. Companies like Pets.com captivated investors with promises of transformative growth, only to collapse spectacularly within months, leaving trillions in losses. The NASDAQ most recently peaked at a mind-numbing 36 times earnings in early 2025.

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Today's AI-driven boom feels eerily reminiscent. Nvidia, the poster child of the AI rally, surged over 400% in three years, pushing valuations into rarefied air not seen since the turn of the millennium. The current NASDAQ P/E ratio, while down from 36 is hovering around 29 - markedly above its historical average of approximately 15–17, signaling extreme investor optimism.

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Unprecedented Players: Central Banks Enter the Fray

However, the current saga in US tech stocks introduces new characters—central banks and more global investors. The Bank of Japan, Norges Bank, and particularly the SNB have quietly transformed from conservative risk managers into active tech stock investors. The SNB’s equity portfolio rivals top-tier hedge funds, significantly exceeding even the holdings of prominent asset managers like Bridgewater and Renaissance Technologies. Their positions include significant stakes in Facebook (Meta), where central bank investment surpasses private institutional investors for the first time in history. While this strategy has worked in past years, 2025 has been an unmitigated disaster and its only April.

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As of June 30, 2024, global central banks and official institutions held approximately $6.6 trillion in U.S. securities, including both equities and debt instruments. This figure represents about 21% of the total foreign holdings of U.S. securities, which stood at $31.3 trillion at that time, according to the U.S. Department of the Treasury.

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Notably, the composition of these holdings has shifted over the years. While central banks traditionally focused on U.S. Treasury securities, there's been a growing trend of diversifying into equities and other assets. This diversification reflects a strategic move to balance portfolios and seek higher returns amid changing global economic conditions.​

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It's important to highlight that, in recent years, private foreign investors have surpassed central banks in holding U.S. Treasuries. As of early 2025, private investors accounted for approximately $4.7 trillion of the total $8.5 trillion in foreign-held U.S. Treasuries, marking a significant shift from a decade ago when central banks were the predominant holders, according to Reuters.

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Raising the Stakes: The Nightmare Scenario

While the dream scenario sees AI revolutionizing productivity and profitability, the nightmare scenario—the critical conflict of this story—is alarmingly plausible. Should AI's promises prove exaggerated, or adoption timelines delayed, earnings disappointments could cascade through valuations. Central banks, facing significant losses on their balance sheets, might be compelled to rapidly divest their positions, triggering massive market sell-offs reminiscent of past financial crises. AI adoption aside, if tensions with China remain frayed, earnings will plummet and valuations will come under pressure.

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Global Implications: When Reality Strikes Back

The systemic risk here is unprecedented. During previous bubbles, central banks were cautious observers or stabilizers. Now, they're active participants whose balance sheets—and thus national economies—are directly exposed to volatile equities. The SNB, managing a balance sheet of nearly 1 trillion Swiss Francs—exceeding Switzerland's GDP—is betting heavily on continued tech prosperity.

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If the current correction worsens, the repercussions could spread far beyond Wall Street, destabilizing currencies, fueling inflation, and undermining public trust in central banks globally. Investors would face both market volatility and geopolitical instability as nations grapple with financial turmoil.

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Resolution: Navigating the Storm

Investors should remain cautiously optimistic and prepare for volatility. Historically, speculative excesses always revert to fundamentals. A disciplined strategy, avoiding overexposure to inflated assets and prioritizing sectors grounded in tangible value, becomes crucial. Hard assets, commodities, utilities, telecoms and dividend-rich equities might offer refuge or at least a counterbalance trade during market turbulence.

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History’s Warning: P/E Ratios Still Sky High

Central banks' unprecedented gamble on tech stocks represents one of the boldest financial narratives ever told. As NASDAQ valuations remain precariously elevated, investors must remember the haunting echoes of bubbles past. The NASDAQ has broken support and the stakes have never been higher. With more debt in the system then ever, a trade war with China escalating, the risks are very real for tech stock valuations in the near term.

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