{"id":837037,"date":"2026-07-31T00:24:11","date_gmt":"2026-07-31T00:24:11","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/837037\/"},"modified":"2026-07-31T00:24:11","modified_gmt":"2026-07-31T00:24:11","slug":"why-an-a-i-bubble-might-not-be-a-bad-thing","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/837037\/","title":{"rendered":"Why an A.I. Bubble Might Not Be a Bad Thing"},"content":{"rendered":"

Michael Burry, the investor made famous in \u201cThe Big Short,\u201d has warned<\/a> about an artificial intelligence bubble. So has Dean Baker, an economist who identified the U.S. housing bubble ahead of the 2008 financial crisis. Even Jamie Dimon, the chief executive of JPMorgan Chase, has expressed caution<\/a>.<\/p>\n

But in Silicon Valley, some people are less worried. In fact, they say, a bubble might be a good thing.<\/p>\n

In particular, venture capital investors, the optimistic risk-takers who provide money for start-ups, view the frothiness as a necessary part of the innovation machine. The excitement created by a bubble can drive new breakthroughs, their thinking goes.<\/p>\n

\u201cBubbles are a part of technology and innovation,\u201d said Tomasz Tunguz, an investor at the venture capital firm Theory Ventures. These frenzies are important for allowing crucial infrastructure to get built, even if they lead to some \u201ccapital destruction\u201d along the way, he added.<\/p>\n

It is a common refrain in the nation\u2019s tech capital. How else can risky, cutting-edge companies attract the money, talent and excitement they need to build the future?<\/p>\n

\u201cIf you were to rely on a purely organic, rational way of financing big technology platform shifts, they would probably never happen,\u201d said Samir Kumar, an investor at Touring Capital, a venture capital firm. Once you get past the excessive exuberance, he added, \u201cthere are long-term benefits.\u201d<\/p>\n

This counterintuitive thinking stands in contrast to rising concerns over a potential A.I. mania, with dealmaking that never seems to stop. This week alone, OpenAI and Nvidia<\/a> were close to landing an elaborate $500 billion data center deal in Ohio. Amazon, Google, Meta and Microsoft said they had spent a combined $170 billion<\/a> on capital expenditures in the second quarter, up 72 percent over last year.<\/p>\n

Venture funding in the first half of the year also hit $413 billion, more than all of 2025, according to PitchBook, which tracks private investment. Young companies that have not released a product or earned a dollar of revenue are landing valuations that sound absurd, in one case reaching $32 billion. And there is so much money sloshing around Silicon Valley that nearby San Francisco has a mansion shortage<\/a>.<\/p>\n

The bubble-is-good philosophy reveals how much the tech industry is still pressing the pedal to the metal, four years into the A.I. boom. Many investors said the funding behavior was justified because companies were using the technology to hit unfathomable levels of growth.<\/p>\n

OpenAI, valued at $730 billion, is generating $2 billion in revenue a month. Anthropic, valued at $900 billion, is producing nearly $4 billion a month. Google and Meta have boasted of nearly a billion people using their A.I. models. The demand for A.I., investors said, is seemingly unlimited.<\/p>\n

\u201cV.C.s only really make money when there are big technology shifts to invest behind,\u201d said Pratyush Buddiga, an investor at Susa Ventures.<\/p>\n

(The New York Times has sued<\/a> OpenAI and Microsoft, claiming copyright infringement of news content related to A.I. systems. The two companies have denied those claims.)<\/p>\n

William Quinn, an associate professor at Queen\u2019s University Belfast and a co-author of \u201cBoom and Bust: A Global History of Financial Bubbles,\u201d said past bubbles, and the easy money that came with them, had obvious positive elements: They drove innovation and long-term economic growth.<\/p>\n

\u201cIn Silicon Valley, there are things that everyone seems to believe that seem crazy to the rest of the world, and on a lot of those things, it seems like Silicon Valley was right and the rest of the world was wrong,\u201d he said.<\/p>\n

Bubbles also tend to go on for a lot longer than people think they will, Mr. Quinn said. Pessimists who see irrational behavior and sit on the sidelines can miss years of gains before any correction or crash. By the time the comedown happens, no one is listening to their bubble warnings anymore.<\/p>\n

\u201cThere\u2019s always the joke that they\u2019ve predicted 10 of the last three crashes,\u201d he said.<\/p>\n

The Dot-Com Lesson<\/p>\n

Tech industry veterans still carry scars of the 2000 dot-com crash and its painful aftermath. For several years after, it was nearly impossible for start-ups to raise money.<\/p>\n

The handful of companies that powered through to the other side \u2014 Amazon, PayPal, eBay \u2014 went on to become behemoths. And over time, the fiber-optic network that exuberant investors overbuilt in that boom helped more people get online, fueling the growth of new tech companies like Facebook.<\/p>\n

Investors who witnessed the dot-com crash remained wary of history\u2019s repeating itself<\/a>. In the early 2010s, they warned of a bubble among mobile apps with no revenue. Then came fears over \u201cunicorn\u201d start-ups<\/a> that were valued at $1 billion or more, followed by nonsensical crypto projects<\/a> and, eventually, the overlapping investment manias of 2021<\/a>.<\/p>\n

But none of those moments led to a major crash.<\/p>\n

Charles Hudson, an investor at Precursor Ventures, said the 2021 frenzy taught him that investors got little credit from sitting things out in bubbly times. Some investors made lots of bad, silly bets in 2021, but their backers did not punish them for the excesses. The lesson, he said, was to keep investing, even when things felt overheated.<\/p>\n

The A.I. boom has been trickier to navigate, with obscene dollar amounts and the market moving at hyperspeed. Even so, Mr. Hudson said he knew he could not sit it out. He has focused on backing even younger companies and homed in on the \u201capplication layer,\u201d or software start-ups that use A.I.<\/p>\n

\u201cIt would be incredibly dangerous, and maybe irresponsible, to just say, \u2018I\u2019m not investing in A.I. at all because I think pockets of the business are a bubble,\u2019\u201d he said.<\/p>\n

Sudheendra Chilappagari, an investor at Battery Ventures, was in school when the dot-com bubble happened. (At 33, he is older than some of the top A.I. start-up founders<\/a>, who were not yet born.) He joked that he felt jealous of his older colleagues because they started investing before there was so much noise and chaos.<\/p>\n

He said he was taking a lesson from their experience in the 1990s search engine wars. At the time, Battery Ventures invested in Infoseek, one of the earliest search engines \u2014 only to get crushed by Yahoo and others that then got crushed by Google.<\/p>\n

\u201cIt\u2019s not always the first mover that captures the enterprise value,\u201d Mr. Chilappagari said. In a so-called supercycle like the A.I. boom, he expects continuous waves of possible investments.<\/p>\n

The investors acknowledge that many factors could set off a crash: geopolitical clashes, competitive threats from cheaper open-source A.I. models, societal backlashes against data centers or more safety problems like OpenAI\u2019s rogue hacking<\/a> of a partner company. Even disappointment over how long it takes investments to pay off could deflate the market.<\/p>\n

\u201cYou don\u2019t want to get delusional,\u201d Mr. Kumar of Touring Capital said.<\/p>\n

Darian Shirazi, an investor at the venture capital firm Gradient Ventures, said his profession had become more nerve-racking because the typical strategy of hitting one home-run deal to drive profits was so much more extreme. Venture capital firms might previously have hoped for a few of their investments to sell for $1 billion or $2 billion. In the A.I. boom, that potential outcome has increased to $50 billion.<\/p>\n

\u201cYour winner can be wildly outsized,\u201d he said. \u201cIf it works, it works much better than anything we\u2019ve ever seen in the history of venture capital.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"Michael Burry, the investor made famous in \u201cThe Big Short,\u201d has warned about an artificial intelligence bubble. So…\n","protected":false},"author":2,"featured_media":837038,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20],"tags":[62,276,277,49,48,9566,191355,33156,291937,11837,61,5673],"class_list":["post-837037","post","type-post","status-publish","format-standard","has-post-thumbnail","category-artificial-intelligence","tag-ai","tag-artificial-intelligence","tag-artificialintelligence","tag-ca","tag-canada","tag-computers-and-the-internet","tag-mobile-applications","tag-search-engines","tag-silicon-valley-calif","tag-start-ups","tag-technology","tag-venture-capital"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/837037","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=837037"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/837037\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/837038"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=837037"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=837037"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=837037"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}