NVDA The excitement around AI has been almost unprecedented this century, but in recent months the mood has begun to sour.Investors and executives of some of the biggest AI companies have openly questioned if current investment levels can really be justified, given the future revenue projections of the industry.
Google Chief Executive Sundar Pichai was one of the most notable figures to raise concerns, speaking about the “irrationality” of many investors, while OpenAI boss Sam Altman has stated in no uncertain terms that he believes the industry is likely now in a bubble, comparing it to the dot-com boom and bust.
Last week, Amazon’s AWS cloud service announced a series of infrastructure and compute investments, including a new AI-optimized chip called Trainium3.
Meanwhile, global stocks are slowing down and in some cases, even reversing, as investors start to show their nerves.
In the last few months, there has been incessant talk of a bubble and the possibility of a market crash that some analysts say could leave the economy reeling for years to come.
But bubbles in the tech industry are nothing new. We’ve seen some pretty big ones over the years, with the dot-com disaster being the most significant, and also some smaller ones, such as the surge in popularity of certain tech platforms (such as video communication tools like Zoom during the Coronavirus pandemic), which later flattened out.
However, in each case, the technological revolution inflating the bubble was very real.
The dot-com boom was driven by the emergence of the internet, which has utterly transformed society and made the world a much smaller and more connected place.
But the market entered into bubble territory anyway, because excitement over the internet’s potential ran ahead of its real world revenue impact.
The rampant growth of AI bears many of the same hallmarks.
Chatbots like ChatGPT and coding agents such as GitHub’s Copilot are extremely impressive and can do some amazing things, but it’s still unclear how they can generate the billions of dollars in profits needed to justify what’s been spent on developing and powering them.
The AI bubble will inevitably pop
Former Wall Street analyst Kirk Yang, now a professor of finance at National Taiwan University, said in an interview that he believes AI’s bubble will ultimately burst, but he’s not certain when.
He believes things could keep ticking over for another year or two, because AI infrastructure builds are still expanding.
“Every company is building their AI capabilities, data centres, components, everything,” he said, adding that this is likely to sustain Nvidia’s revenue for a while longer and bolster the market’s enthusiasm.
However, once the infrastructure is in place and these build-outs decelerate, that’s when enthusiasm may start to fade, he said.
Lightricks co-founder and CEO Zeev Farbman echoed the concerns of many of his peers, telling CNBC in a recent interview that he believes the industry is entering dangerous territory.
“If you define a bubble as expectations that are backed up by capital that aren’t going to meet reality anytime soon, then we are clearly there,” he said.
Lightricks develops its own open-source video AI models, and the company has also partnered with Google to run the startup’s video model processing – and to distribute the Big Tech firm’s Veo models through the LTX Platform.
“It’s challenging for some [investors] to see it, because AI is a magical, transformative piece of technology that is going to have a huge impact on everything,” Farbman continued, “but it’s similar to what happened in the late 1990s, where the internet was also a magical piece of tech.”
How bad will it be?
Once the enthusiasm for AI wanes, the first thing we’ll see is the money tap drying up.
Venture capitalists and institutional investors will become a lot less frivolous and push for more profits.
