What’s going on here?

Ray Dalio warned that US stocks – pushed to concerningly high valuations by AI-enamoured investors – are starting to jog memories of the dotcom bubble.

What does this mean?

It’s the classic bubble-building situation: a groundbreaking bit of tech promises to revolutionize industries, investors buy into the best-case scenario, and stock prices end up valued on expectations that are nearly impossible to live up to. Problem is, the slightest warning sign can send investors running for the hills – or in other words, the bubble bursts. AI does, of course, have huge potential to dial up both companies’ profitability and economic growth – as the internet did in the dotcom era. Just remember that rising interest rates, intense competition, or a sudden shift in sentiment could quickly send stocks south. Dalio’s message is clear: this is a moment for caution, not blind enthusiasm.

Why should I care?

For markets: The price tag problem.

As investing legend Howard Marks puts it, “it’s not what you buy that determines your results, it’s what you pay for it.” Translation: even the best stocks can fail to deliver if you pay too much for them. Unfortunately, there’s no hack for telling when a stock has become “too” expensive, but certain signals may indicate that the odds are against you. We’re talking concentrated risks – with only a few companies responsible for rallies, runaway valuation levels, and investors buying certain shares at any price… Yeah, a lot like today’s market.

The bigger picture: Chaos before order.

After studying past technological revolutions, experts have seen that transformative technologies take time to integrate into everyday life. They pass through two phases – called installation and deployment – with a turbulent turning point between them. That transition often brings market crashes, instability, and uncertainty as society adapts to the change – and there’s no reason to believe the adoption of AI will be any different.

What’s going on here?

Europe’s heftiest software firm, SAP, reported on Tuesday that its cloud revenue was a better-than-expected 27% higher last quarter than a year ago.

What does this mean?

A leader in Europe’s tech industry, it should come as no surprise that SAP has been performing a software update – but this one is pretty unique. The firm has been convincing businesses to trade their clunky, outdated systems for sleeker and pricier cloud offerings. And customers aren’t just swapping to the cloud, they’re buying the bells and whistles too. Last quarter, half of SAP’s cloud orders included AI tools, which helped pull total sales 29% higher than the same time last year. Confidence bolstered, the firm nudged its forecast for this year’s revenue a little higher.

Why should I care?

The bigger picture: Not Star-Spangled, but still star-studded.

Europe’s tech scene hasn’t quite captured the headlines like America’s lately – but find the right niche, and there’s still plenty for investors to write home about. Businesses across the region are throwing money into their operational cogs to increase efficiency, productivity, and automation where they can. And, clearly, investors have noticed the trend. They’ve turned away from the stocks of some more direct AI plays – like Europe’s prized chipmaker ASML, which was the region’s biggest tech company until last year – and sent SAP’s shares higher. The firm’s stock is up 61% over the past year, nearing record highs.

For markets: We’re stuck together for life now, darling.

Chinese AI app DeepSeek overtook US-based rivals to claim the top spot in Apple’s App Store this week, shaking investors’ confidence in Big Tech’s market share and sparking a tech stock selloff. But SAP should be fairly protected from that fallout – and any potential similar ones in the future. That’s because it’s costly and disruptive for companies to switch software, so SAP’s clients are likely to stick around – even if a cheaper or smarter competitor pops up.