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Is the AI Bubble Starting to Burst?

Is the AI Bubble Starting to Burst?

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 A recent MIT study found that 95% of companies have received no benefit from generative Artificial Intelligence (AI). Sam Altman, CEO of OpenAI, recently warned of an AI bubble. Altman compared the current AI frenzy and the 1990's dotcom bubble when company valuations spike dramatically before crashing. The poster child of the dotcom craze was Pets.com. It was backed by Amazon. Pets.com reached a valuation of $410 million before going bankrupt about a year later. CoreWeave is an AI company backed by Nvidia. After the MIT study, its stock dropped 33%. CoreWeave's peak valuation was 60x times larger than Pets.com at it's peak. This is the reason Sam Altman stated that "Someone is going to lose a phenomenal amount of money" and "When bubbles happen, smart people get overexcited about a kernel of truth". Sam Altman and most tech experts still believe AI will transform the economy in the future. The problem is AI is currently limited by the shortage of GPU's. Sam Altman stated "We have better models, but we can't offer them because we don't have the supply." Sam Altman also stated that "trillions of dollars" will have to be invested in infrastructure to scale AI to advance further. An AI search uses about 10x the computing power of a typical Google search. This information has caused concern for investors. I believe that AI will make a significant positive on the economy, but it may take much longer than many investors expect. With historically high valuations, stock prices may suffer a significant correction before AI can really make a difference. Is this the beginning of the AI bubble starting to burst? We will know soon.

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