From being feted in the last couple of years for its immense success, its immense change potential leading to immense money being invested in it and the immense buzz about it changing the future, it’s been a volte face in sentiments in recent days over the prospects for AI.
Nvidia, the company that became the world’s most valuable, even breaching a market cap of more than $5 trillion—all on the power of the fact that it has a stranglehold on the market for powerful processors on which AI models work, saw a drop of 2.6 per cent last night—that’s a neat loss of around $115 billion.
Is the AI boom a bubble that is going to burst, going the dot-com boom way?
“We are not fully in bubble conditions yet, but we are certainly closer than many are willing to admit,” said Jaspreet Bindra, founder of AI&Beyond, an AI literacy firm.
Nvidia’s cumulative drop through this month could be above 10 per cent—contrasting sharply with the dream run AI stocks have been having over the past year, and the unbelievable amount of money being ploughed into AI companies.
According to Bloomberg, venture capitalists invested close to $200 billion in AI startups this year, and mind you, this is an estimate from January to September only. OpenAI, the company behind ChatGPT, was the biggest beneficiary, getting as much as $40 billion.
Mind you, this doesn’t account for the internal money big tech firms like Alphabet and Meta have put into their AI research. Even the US government has offered funds, the belief being that AI is going to upend the way we work, do business and essentially live, so it’s better to have an early upper hand in it.
But now, all that ebullient nature of talk about AI’s ‘brave new world’ is metamorphosing into one of caution and dread. Sceptical pundits are calling out the mindbogglingly immense amounts of money going into AI research and no return in sight.
‘The Big Short’ Burry and co double down
Hallowed investor Michael Burry, famed for predicting the 2008-‘09 global financial crash in a way that set off panic the other day when he said AI is akin to the dot-com bubble and that stock markets are headed for a fall.
He’s not alone. Anyone, from the Bank of England to research firms, have come up alleging that many AI startups do not have a sustainable business model and that the massive funding is not proportional to any likely gain or utility in the future.
Goldman Sachs CEO David M.Solomon famously said “there will be winners and losers”, warning that most investors throwing money at AI startups were unlikely to make a profit, hinting at over-inflated valuations.
Veterans of the rollercoaster nature of big tech and the bigger financial ecosystem know the pattern too well—first a breakthrough that promises to immensely transform the status quo, then a mad rush as everyone and their uncle scramble to pitch in money, or kickstart their ventures in the sunrise sector.
And then? Darkness at noon.
“History from the dot-com era reminds us that while technological revolutions do happen, their timelines are often overly optimistic,” explained Bindra, adding, “Today’s investor sentiment has familiar patterns: FOMO, inflated expectations, and assumptions of endless expansion…but even breakthrough technologies can be overpriced in the short term.”
Ironically, there is a school of thought which argues that if the AI bubble bursts, it could actually be good news for India. This is since all the money in the past couple of years that was chasing Tech stocks in Nasdaq and NYSE, as well as AI front liners like South Korea, will now make their way to the Indian markets.
“If the AI enthusiasm slows, Big Tech’s massive spending on infrastructure and chips won’t vanish — but it might take much longer for those investments to pay off. That could lead to a broader tech correction as markets pivot from excitement back to fundamentals,” said Bindra.