{"id":255242,"date":"2025-11-10T17:18:09","date_gmt":"2025-11-10T17:18:09","guid":{"rendered":"https:\/\/www.newsbeep.com\/uk\/255242\/"},"modified":"2025-11-10T17:18:09","modified_gmt":"2025-11-10T17:18:09","slug":"ai-bubble-about-to-pop-as-returns-on-investment-fall-short-dw-11-10-2025","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/uk\/255242\/","title":{"rendered":"AI bubble about to pop as returns on investment fall short? \u2013 DW \u2013 11\/10\/2025"},"content":{"rendered":"

The artificial intelligence<\/a> (AI) party is still in full swing, with tens of billions globally\u00a0pouring into infrastructure, startups and attracting the best talent.<\/p>\n

Among the headline announcements this year:\u00a0ChatGPT parent company\u00a0Open AI,<\/a> Softbank and Oracle pledged to invest $500 billion (\u20ac433 billion) in AI supercomputers, Open AI and chip giant Nvidia\u00a0announced a $100 billion fund to maintain the United States’<\/a> dominance in advanced chips, while Chinese tech giants Alibaba and Tencent hiked\u00a0investments to help speed up China’s<\/a> ambition to lead AI by 2030<\/a>.<\/p>\n

Since ChatGPT\u2019s<\/a> debut in November 2022, AI-related stocks have added an estimated $17.5 trillion in market value, according to Bloomberg Intelligence,\u00a0driving around 75% of the S&P 500\u2019s gains and propelling companies like Nvidia and Microsoft to record-breaking valuations.<\/p>\n

Corporations are hesitant over\u00a0AI adoption<\/p>\n

But signs of a hangover are getting harder to ignore. AI<\/a> usage by corporations is slipping,\u00a0spending is tightening\u00a0and the machine learning hype has massively outpaced the profits.<\/p>\n

Many economists think usage concerns, barely three years into AI going mainstream, dropkick\u00a0the prevailing narrative that AI would revolutionize how businesses operate by streamlining\u00a0repetitive tasks and improving\u00a0forecasting.<\/p>\n

“The vast bet on AI infrastructure assumes surging usage, yet multiple US\u00a0surveys show adoption has actually declined since the summer,”\u00a0Carl-Benedikt Frey,\u00a0professor of AI & work at the UK’s University of Oxford, told DW.\u00a0“Unless new, durable use cases emerge quickly, something will give \u2014 and the bubble could burst.”<\/p>\n

The US Census Bureau, which surveys 1.2 million US companies every fortnight, found that AI-tool usage at firms with more than 250 employees\u00a0dropped from nearly 14% in June to under 12% in August.<\/p>\n

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AI\u2019s biggest challenge\u00a0remains its tendency to hallucinate<\/a> \u2014 generating plausible but false information. Other weaknesses are inconsistent reliability and the poor performance of autonomous agents, which\u00a0complete tasks successfully only about a third of the time.<\/p>\n

“Unlike an intern who learns on the job, today\u2019s pretrained [AI] systems don\u2019t improve through experience.\u00a0We need continual learning and models that adapt to changing circumstances,” said Frey.<\/p>\n

Unsustainable capital burn<\/p>\n

As the gap\u00a0widens\u00a0between sky-high expectations and commercial reality, investor enthusiasm for AI is starting to fade.<\/p>\n

In the third quarter of the year, venture-capital deals with private AI firms dropped by 22% quarter on quarter to 1,295, although funding levels remained above $45 billion for the fourth consecutive quarter, market intelligence firm CB Insights wrote last month.<\/p>\n

“What perturbs me is the scale of the money being invested\u00a0compared to the amount of revenue flowing from\u00a0AI,”\u00a0economist Stuart Mills, a senior fellow at the London School of Economics, told DW.<\/p>\n

\"anMicrosoft has poured billions into ChatGPT owner Open AIImage: Mateusz Slodkowski IMAGO\/SOPA Images<\/p>\n

Market leader\u00a0OpenAI, which is backed by Microsoft, generated\u00a0$3.7 billion in revenue\u00a0last year, versus total operating expenses of $8-9 billion. The company says it is on course to make $13 billion this year but is\u00a0still expected to burn through $129 billion before\u00a02029, news site The Information calculated\u00a0in September.<\/p>\n

Mills thinks\u00a0generative AI companies like Elon Musk’s<\/a> Grok and ChatGPT are “charging far less than they need to make a profit” and should\u00a0raise subscription prices.<\/p>\n

Few have quantified the\u00a0AI bubble more starkly than Julien Garran, partner at UK-based research firm MacroStrategy Partnership. He argues that the sheer volume of capital flowing into AI \u2014 despite little evidence of sustainable returns \u2014 dwarfs previous speculative frenzies.<\/p>\n

“We estimate a misallocation of capital equivalent to 65% of US\u00a0GDP \u2014 four times bigger than the housing buildup before the 2008\/9 financial crisis\u00a0and 17 times bigger than the dot-com bust,” Garran told DW.<\/p>\n

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Investors increasingly cautious<\/p>\n

Recent earnings from Big Tech<\/a> have sparked cautious optimism, but also fresh doubts about AI\u2019s staying power.\u00a0Data analytics and intelligence platform\u00a0Palantir’s\u00a0Q3 revenue surged 63% year-over-year, but its stock price fell by up to 7% on the news. AMD and Meta also saw\u00a0their strong AI-related earnings overshadowed by market concerns about sustainability.<\/p>\n

That disconnect between soaring valuations and shaky fundamentals is exactly what worries Mills, who sees a widening gap between what AI promises and what it actually delivers to businesses.<\/p>\n

“The data suggests that AI is not penetrating high enough up the value chain.\u00a0Loads of people are using it, but it’s not being used for tasks that directly contribute to value production,” he told DW.<\/p>\n

Nvidia’s<\/a>\u00a0upcoming earnings on November 19 may prove a key test of whether the AI boom still has legs. In the second quarter, Nvidia’s\u00a0data center sales alone made up 88% of total revenue, which hit a record $46.7 billion.\u00a0For Q3, the company has guided $54 billion, projecting 54% year-on-year growth, which would equate to\u00a0a full-year total of more than $200 billion.<\/p>\n

\"NvidiaNvidia founder and CEO Jensen Huang has turned the chipmaker into a nearly $5 trillion giantImage: Jung Yeon-je\/AFP<\/p>\n

When will the bubble pop?<\/p>\n

“With the exception of Nvidia, which is selling shovels in a gold rush, most generative AI companies are both wildly overvalued and wildly overhyped,” Gary Marcus, Emeritus Professor of Psychology and Neural Science at New York University, told DW. “My guess is that it will all fall apart, possibly soon. The fundamentals, technical and economic, make no sense.”<\/p>\n

Garran, meanwhile,\u00a0believes the era of rapid progress in large language models (LLMs) is drawing to a close, not because of technical limits, but because the economics no longer stack up.<\/p>\n

“They [AI platforms] have already hit the wall,” Garran said, adding that the cost of training new models is “skyrocketing, and the improvements aren\u2019t much better.”<\/p>\n

Striking a more positive tone,\u00a0Sarah\u00a0Hoffman, director of AI Thought Leadership at the New York-based market intelligence firm AlphaSense, predicted a “market correction” in AI, rather than a “cataclysmic ‘bubble bursting.'”<\/p>\n

After an extended period of extraordinary hype, enterprise investment in AI will become far more discerning, Hoffmann told DW in an emailed statement, with the focus “shifting from big promises to clear proof of impact.”<\/p>\n

“More companies will begin formally tracking AI ROI [return on investment]\u00a0to ensure projects deliver measurable returns,” she added.<\/p>\n

Edited by: Uwe Hessler<\/p>\n","protected":false},"excerpt":{"rendered":"The artificial intelligence (AI) party is still in full swing, with tens of billions globally\u00a0pouring into infrastructure, startups…\n","protected":false},"author":2,"featured_media":255243,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20],"tags":[554,733,4308,86,56,54,55],"class_list":{"0":"post-255242","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-artificial-intelligence","8":"tag-ai","9":"tag-artificial-intelligence","10":"tag-artificialintelligence","11":"tag-technology","12":"tag-uk","13":"tag-united-kingdom","14":"tag-unitedkingdom"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/255242","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=255242"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/255242\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/255243"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=255242"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=255242"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=255242"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}