{"id":79344,"date":"2025-10-14T06:48:09","date_gmt":"2025-10-14T06:48:09","guid":{"rendered":"https:\/\/www.newsbeep.com\/ie\/79344\/"},"modified":"2025-10-14T06:48:09","modified_gmt":"2025-10-14T06:48:09","slug":"what-could-burst-the-ai-bubble","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ie\/79344\/","title":{"rendered":"What could burst the AI bubble?"},"content":{"rendered":"

Analysis: As tech firms soar in value, there are now warnings of a possible rapid correction due to concerns about how realistic such valuations actually are<\/p>\n

By Richard Whittle<\/a>, University of Salford<\/a> and Stuart Mills<\/a>, University of Leeds<\/a><\/p>\n

Some of the world’s biggest tech firms have soared in value over the last year. As AI evolves at pace, there are hopes that it will improve lives in ways that people could never have imagined a decade ago \u2013 in sectors as diverse as healthcare, employment and scientific discovery. OpenAI<\/a> is now worth US$500 billion<\/a> (\u20ac431 billion), compared with US$157 billion (\u20ac135 billion) last October. Another firm, Anthropic<\/a>, has almost trebled its valuation<\/a>.<\/p>\n

But there are now warnings<\/a> of a possible rapid “correction” due to concerns about these staggering valuation rises. The question is whether these values are realistic \u2013 or based on hype, excitement and unfounded optimism for the potential of AI. Put simply, is AI’s value today a product of what AI will do in future or what people hope it may do? Ultimately, we will only really know if it’s a bubble if it bursts \u2013 though the warning signs are evident today.<\/p>\n

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From RT\u00c9 Radio 1’s The Business, financial institutions such as the Bank of England and JP Morgan have warned that AI stock has reached bubble levels so will AI investments meet a similar fate to the 1990s dot com boom and bust<\/p>\n

With hindsight, many things that happen in a bubble may sound exceedingly optimistic. If you take many headlines and replace the word AI with the word computers it often sounds a lot more naive. But, predicting the path of technological change is hard. Back in 2000 the Daily Mail declared the internet could be a passing fad<\/a>. Just a few months earlier, the dotcom boom had peaked<\/a>.<\/p>\n

A burst bubble may not change the end of the journey. The internet was not a passing fad. However, bubbles are extremely disruptive and affect people in very real ways. Stocks fall, pensions suffer, unemployment rises and investment is wasted. Real potential is crowded out in the hype and mania to focus all investment in a small number of stocks and firms.<\/p>\n

Right now, we have the first sign of a bubble \u2013 a rapid rise in valuations. If these correct and fall, we will have a bubble. If these valuations continue to rise we could be seeing a new sustained market that is focused on the technology of the future.<\/p>\n

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From RT\u00c9 Radio 1’s Liveline, is your job AI-safe?<\/p>\n

Of course, it might be that these valuations plateau. What happens then depends on whether people have invested in the belief that prices will always rise. Consider a situation where people believe that AI firms’ valuations may be “stretched”<\/a>. It’s helpful to consider what these valuations are based on. Investment is simply a bet that AI increases profitability for the firms involved. These massive valuations are bets that AI will hugely increase future profitability.<\/p>\n

In some cases these are bets that AI will improve in capabilities towards some kind of “artificial superintelligence” that can do everything a human can do \u2013 or more. This could raise the living standards of everyone on Earth. Leading computer scientist Stuart Russell estimates<\/a> the value of that at US$14 quadrillion \u2013 investors are buying a claim on that outcome too.<\/p>\n

If investors begin to fear that AI profits won’t materialise then they will try to get their money back. This realisation can appear quite suddenly and can be prompted by seemingly minor events. It doesn’t require a big needle to pop a bubble.<\/p>\n

\"close-up<\/a>
\nExcitement at easy internet access in the 1990s fuelled the dotcom bubble. Gorodenkoff\/Shutterstock<\/a><\/p>\n

A US article in March 2000 warned<\/a> that internet companies were fast running out of money. This caused many people to rethink their investments<\/a><\/p>\n

At this stage of the bubble, investment excitement had spread to everyday investors. These regular people balanced their fear of missing out with a fear that they were investing in something new that they didn’t know much about. For many, an article in a popular magazine suggesting they may have made a mistake tipped the scales towards caution. They began to sell their dotcom stocks.<\/p>\n

In search of profit<\/p>\n

It may come as a surprise to some that, despite its increasing valuations, OpenAI does not yet make a profit<\/a>. It may require ten times more revenue<\/a> to do so. A US$500 billion valuation is quite something for a company that reportedly lost US$7.8 billion<\/a> (\u20ac6.73 billion) in the first half of this year.<\/p>\n

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From RT\u00c9 Radio 1’s Morning Ireland, investors fearful of a global recession<\/p>\n

Some of this value appears to flow from a new deal<\/a> between OpenAI and Nvidia<\/a> where Nvidia will invest in OpenAI and OpenAI will buy Nvidia chips. This circular financing keeps everything afloat for now, but at some point investors will need to see returns. AI firms more generally do not appear to be profitable<\/a> at the moment. Investors are not putting their money into today’s losses \u2013 they are betting on an AI future.<\/p>\n

It is of course perfectly feasible that AI firms will develop business models to increase their profitability. OpenAI is exploring advertising options<\/a> and allowing chatbots to recommend products. Using AI to deliver these messages is a viable option, though they will have to avoid the tricks and manipulations<\/a> associated with online platforms, such as when hotel websites announce that rooms are about to sell out. We believe that AI can increase the power<\/a> of these manipulations and we wonder how persuasive chatbots may be in their recommendations.<\/p>\n

However, the big four \u2013 Meta<\/a>, Alphabet<\/a>, Microsoft<\/a> and Amazon<\/a> \u2013 are spending the equivalent of the GDP of Portugal<\/a> on AI infrastructure this year. This is not investment in new targeted ads, it is investment in an AI future. The bubble will burst if and when this future is in doubt.\"The<\/p>\n

Follow RT\u00c9 Brainstorm on WhatsApp<\/a> and Instagram<\/a> for more stories and updates<\/p>\n

Richard Whittle<\/a> is University Fellow in AI and Human Decision Making at the University of Salford<\/a>, Stuart Mills<\/a> is Assistant Professor of Economics at the University of Leeds<\/a>. This article was originally published by The Conversation<\/a>.<\/p>\n

The views expressed here are those of the author and do not represent or reflect the views of RT\u00c9<\/p>\n