Are We in an AI Bubble? Investment Lessons for Law Firm Owners
The Question Every Law Firm Owner Should Be Asking
Artificial intelligence is revolutionizing everything—from how we draft legal documents to how we invest, market, and scale our law firms. Billions of dollars are flowing into AI infrastructure, software, and data centers. Tech giants are breaking records. And investors are watching stocks tied to AI rise at dizzying speeds. It all feels… familiar.
If you’ve been reading A Random Walk Down Wall Street with us in The Lawyer Millionaire Book Club, you already know where this story might lead. Burton Malkiel writes,
“The consistent losers in the market are those who are swayed by emotion, by the crowd, and by greed.”
So today, I want to ask a question that every serious investor—and every law firm owner—should be asking right now:
Are we in an AI bubble?
And more importantly:
What can law firm owners learn from history about investing wisely, growing wealth, and protecting their firms from the madness of crowds?
The Original Bubble: Tulip Mania
To find answers, let’s go back to 17th-century Amsterdam—the wealthiest city in the world. Trade was booming. Ships from Asia and Africa filled Dutch ports with spices, silk, and sugar. Prosperity was everywhere. And into this fertile ground bloomed the tulip—a flower imported from the Ottoman Empire that became the ultimate status symbol.
Tulips were exotic, colorful, and rare. The most prized varieties, like the Semper Augustus, had flame-like streaks caused by a virus that made each bloom unique. At first, tulips were a luxury for the rich. But as prices rose, ordinary citizens began speculating—trading futures contracts on bulbs that hadn’t even been dug up yet. A single bulb could sell for ten times the annual income of a skilled craftsman. Another sold for the price of a luxurious canal-front home.
It wasn’t just about flowers anymore. It was about dreaming of easy wealth.
Then, one February morning in 1637, the buyers didn’t show up to an auction in Haarlem. Within weeks, the entire market collapsed. Prices fell by 90%. Contracts became worthless. Fortunes disappeared overnight. The tulips didn’t lose their beauty—what vanished was confidence.
The Lesson for Modern Investors
Every bubble begins with something real—an innovation, a new market, a powerful idea. And every crash begins when speculation outruns substance.
Malkiel calls it “the timeless pattern of speculative excess.”
The story of Tulip Mania isn’t about stupidity—it’s about psychology. It’s about human behavior when money and emotion collide.
The South Sea Bubble: Britain’s Great Delusion
A century later, the same pattern repeated in London. The South Sea Company, founded in 1711, promised British investors a monopoly on trade with South America—the so-called “South Seas.”
Investors imagined ships filled with gold, silver, and riches from across the world. In reality, Britain was at war with Spain, who controlled those territories. The trade routes were mostly fantasy.
But the story was irresistible.
Members of Parliament invested. Aristocrats invested. Even Sir Isaac Newton invested. The stock soared from £100 to more than £1,000 a share in just months. When the company’s inflated promises finally collapsed, thousands were ruined. Newton reportedly lost most of his fortune and later remarked:
“I can calculate the motions of the heavenly bodies, but not the madness of people.”
Sound familiar?
That was 1720. But it could just as easily have been 2000—or 2025.
Fast Forward: The AI Boom of Today
Now let’s come back to the present.
If you look at the latest data from Q4 2025, private investment in technology—especially AI and information processing equipment—is growing faster than at any point since the dot-com era. The market is being driven by what analysts call the “Magnificent Seven”: Microsoft, Apple, Nvidia, Amazon, Meta, Alphabet, and Tesla. AI infrastructure spending is exploding. Chip demand is soaring. AI-related companies are reporting record profits.
But beneath the surface, warning signs are flashing:
Stock valuations for AI leaders are at historic highs.
The Federal Reserve is cutting rates again, fueling risk-taking.
Credit spreads are tightening—meaning investors are underpricing risk.
Small caps and value stocks are lagging while speculative tech leads the way.
If this sounds familiar, it’s because it is.
Just like Tulip Mania, just like the South Sea Bubble, and just like the dot-com boom of the 1990s, today’s AI boom carries a familiar mix of innovation and illusion. The question isn’t whether AI is real—it absolutely is. The question is whether investors are pricing in too much, too fast.
The Madness of Crowds: Why Smart People Fall for It
So why do bubbles happen—over and over again? Because markets are made of people. And people are emotional. Psychologists call it herd behavior—the instinct to follow the crowd because doing otherwise feels risky. When your peers are making money, it feels almost foolish not to join in. When your neighbor buys a Tesla stock that triples, you start to wonder if you’re missing something. That’s the psychology behind FOMO—the Fear of Missing Out.
New technologies often produce temporary periods of euphoria, where investors project limitless potential long before the profits arrive. From tulips to AI, the story doesn’t change. The players do.
Investment Strategy Lessons for Law Firm Owners
Law firm owners are both investors and entrepreneurs. And that means you face the same temptations that drive market bubbles: chasing trends, reacting emotionally, and overestimating short-term gains. But you also have the same opportunity as great investors—to take the long view, focus on fundamentals, and build real, lasting value.
Here are three timeless lessons from history that can help you do just that:
1. Beware of the FOMO Feeling
FOMO is the emotional fuel of every bubble. When everyone else is making money—or seems to be—it’s easy to feel left out. But here’s the truth: by the time you feel it, the best opportunities are usually gone.
Ask yourself:
“Am I buying because I believe in the fundamentals—or because I don’t want to be the only one who missed out?”
In your firm, that same question applies to marketing, hiring, and technology decisions. Don’t buy because others are buying. Buy because it makes sense for you.
2. Stay Grounded in What Works
When the market gets noisy, the winners are the ones who stay rooted in fundamentals. In investing, that means diversification, patience, and cash flow. In business, it means systems, leadership, and client relationships.
In other words: don’t chase tulips. Build something that grows even when others panic.
3. Don’t Try to Outsmart the Crowd
Economists call it the Greater Fool Theory—the idea that you can always sell at a higher price because there will be someone even more optimistic (or foolish) willing to buy.
But eventually, the fools run out.
That’s when bubbles burst—and wealth built on speculation disappears.
As a law firm owner, the same applies to your practice. Don’t try to “time the market” with your business decisions—build for the long game. Focus on value, service, and sustainability, not what’s flashy this quarter. Because true wealth isn’t about being smarter than the crowd. It’s about being steadier than the crowd.
The Long Game: Wealth, Freedom, and Discipline
Every generation has its version of tulips. What separates those who build real wealth from those who lose it is simple: discipline.
Law firm owners who build wealth don’t chase hype—they build systems.
They automate savings.
They invest consistently.
They create recurring revenue in their firms—so money works while they sleep.
That’s how you build freedom—the ultimate form of wealth.
As Warren Buffett said,
“If you don’t find a way to make money while you sleep, you’ll work until you die.”
Your law firm can be that vehicle—if you run it like an investor, not just an attorney.
So… Are We in an AI Bubble?
Maybe. The signs are there—speculation, excitement, concentration in a few stocks, and the belief that “this time it’s different.” But maybe it’s not a bubble—maybe it’s the early stage of a real transformation.
Either way, the lesson for law firm owners is the same: Don’t get caught up in the noise. Invest with discipline. Build wealth patiently. Because in both the stock market and your practice, hype comes and goes—but fundamentals always win.
Final Thoughts
History doesn’t repeat, but it does rhyme. From tulips to tech stocks to AI, human behavior hasn’t changed. The same forces that drove a flower bulb to cost a fortune in 1637 are alive in every speculative boom today.
So the real question isn’t “are we in a bubble?” It’s: how will you respond when everyone else is losing their minds?
At The Lawyer Millionaire, we help law firm owners master both money and mindset—so you can grow your wealth with purpose, and build the freedom you’ve been working for.
If you’re ready to think differently about money, join us inside the Lawyer Millionaire Masterclass and Book Club.
Each quarter, we study a game-changing book like A Random Walk Down Wall Street and turn its ideas into practical strategies for your firm and your financial plan.