Lauren Taylor Wolfe, co-founder of Impactive Capital, has issued a stark warning to investors, declaring that the current surge in artificial intelligence enthusiasm has all the hallmarks of a classic market bubble. Speaking on CNBC’s Squawk on the Street, Taylor Wolfe said the excitement driving AI-related stocks is “unsustainable” and could soon lead to heavy financial losses for unprepared investors.

AI Euphoria Reaching Dangerous Levels
“We are absolutely in an AI bubble now — and it will burst,” she said. “I don’t know when or how severe it will be, but a lot of people are going to lose money.”

Her comments come as AI-related companies continue to dominate market conversations and valuations. The “Magnificent 7” — Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta, and Tesla — have collectively added over $6 trillion in market value since early 2023, largely fueled by AI optimism. Analysts note that nearly one-third of the S&P 500’s performance this year has been driven by these AI-heavy stocks, effectively turning the index into what some call “an AI index.”

Spending vs. Profitability: A Growing Imbalance
Taylor Wolfe cautioned that the scale of AI investment has far outpaced measurable returns. “There are trillions of dollars being earmarked for AI-related capital expenditures,” she said, “while the companies generating these initiatives are producing only hundreds of billions in free cash flow. The math simply doesn’t work.”

Tech giants have announced aggressive AI spending plans in recent quarters. Microsoft revealed plans to invest over $50 billion in AI infrastructure over the next few years, while Alphabet and Amazon are committing similar levels to cloud and data center expansions. Wolfe argued that such spending, largely financed by borrowing, could strain balance sheets if the expected AI-driven profits fail to materialize.

Echoes of the Dot-Com Era
Taylor Wolfe drew a direct parallel between today’s AI hype and the late 1990s dot-com bubble, when investors poured capital into internet companies with little regard for fundamentals. “Everyone was chasing anything with ‘.com’ in its name,” she said. “Now, the same thing is happening with AI.”

She emphasized that during the dot-com bust, the best opportunities were not in overvalued tech names but in overlooked sectors with stable fundamentals. “You’d have been better off owning a railroad in 2000 than buying Cisco at 35 times earnings,” she said. “At Impactive, we’re looking for our modern-day railroads — companies that are real, profitable, and not inflated by hype.”

Seeking Value Beyond the AI Frenzy
At the 13D Monitor Active-Passive Investor Summit, Taylor Wolfe highlighted one of her firm’s latest investments: Advanced Drainage Systems (ADS). She described the company as the “undisputed leader” in plastic stormwater and residential septic systems — a business that, unlike AI-driven tech firms, is grounded in tangible demand and predictable earnings. “This is a company that’s AI-proof,” she said.

ADS, which operates in over 40 states across the U.S., has seen steady growth in infrastructure and residential markets, with annual revenues exceeding $3 billion. Wolfe noted that while Wall Street’s attention is fixated on AI startups, companies like ADS offer strong fundamentals, recurring cash flow, and long-term growth tied to essential infrastructure needs.

A Reality Check for Investors
Wolfe’s remarks serve as a reminder that while artificial intelligence is transforming industries, investors must differentiate between long-term innovation and short-term speculation. She argued that the most profitable investment opportunities often lie outside the current hype cycle.

“AI is revolutionary,” she said, “but revolutions take time to translate into real earnings. Today’s valuations suggest perfection — and markets rarely deliver perfection.”

As investors continue pouring billions into AI-related equities, Wolfe’s message is clear: caution, diversification, and patience may be the best defense against the next bubble bursting.