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AI Bubble
AI fever seems to have taken over the world. Silicon Valley giants and tiny startups alike have raced to capitalize on the transformative technology, causing a wave of innovation, investment and adoption across several industries. In fact, investment in AI, data centers and software processing technology was responsible for about 92 percent of all U.S. gross domestic product growth in the first half of 2025, according to some estimates. And it is poised to remain a pivotal part of the nation’s economy.
But not everyone is buying the hype. As billions of dollars pour in and valuations skyrocket, some skeptics wonder whether all of this will last — or if the artificial intelligence industry is simply a bubble about to burst.
What Is a Bubble in Economics?
In economics, a bubble refers to a situation where the price of an asset rises beyond its fundamental value (usually because of hype and excessive demand) and eventually crashes — known as the bubble “popping” or “bursting” — causing rapid valuation decreases, financial losses and business failures.
Notable examples of bubbles include the dot-com bubble of the 1990s, where the overvaluation of internet startups led to the 2000 stock market crash; and the housing bubble of the mid-2000s, where risky lending blew up the housing market in 2007, setting off the Great Recession.
Is There an AI Bubble?
Bubbles can only be conclusively identified after they’ve popped. That said, the AI industry does have several characteristics of a bubble, insofar as widespread hype and an influx in speculative investments are driving much of its current growth.
As public interest and media coverage has grown, companies eager to capitalize on AI’s perceived opportunities have poured billions of dollars into the technology. Globally, private AI companies have pulled in an estimated $150 billion in 2025, a significant increase from previous years. OpenAI alone raised $40 billion in March 2025 and completed a $6.6 billion share sale in October 2025, ultimately leading the company to reach a valuation of $500 billion. Companies like Anthropic, Mistral AI and xAI also secured multi-billion-dollar rounds.
The uncertainty around AI grows when considering that the technology already comes with many fundamental challenges, including the difficulty of finding ways to make money off of it, and how impactful it will really be for automating work and changing the future of the job market.
“The expectations of [AI] are far beyond what the technology can deliver,” Xun Wang, chief technology officer at marketing automation company Bloomreach, told Built In. “There’s a whole bunch of people who think that they can deploy this technology to solve everything and replace everything. But that’s just not going to happen.”
Still, tech companies continue to promote ambitious AI visions, hoping they can figure out the revenue part later. In the next few years, Microsoft, Meta, Google and Amazon plan to spend hundreds of billions of dollars on AI initiatives and the data centers needed to power them. OpenAI says it will spend more than $1 trillion on AI infrastructure alone through 2035. And so, the bubble keeps getting bigger.
When Did the AI Bubble Begin?
After decades of sporadic growth and decline, the AI industry hit its stride in November of 2022, when OpenAI released ChatGPT. Built on a transformer architecture (a type of neural network originally introduced by Google in 2017), the chatbot could understand and generate natural language in coherent, human-like text responses, showcasing the powerful potential of generative AI to the world for the first time.
“It grew the visibility of what AI could do,” Erik Brown, senior partner of AI and product engineering at West Monroe Partners, told Built In. “That drove this hype cycle.”
Excitement escalated into full-blown hysteria. Venture capitalists invested billions into AI startups, including everything from AI-powered lawyers and therapists to image and music generators. Suddenly, every company was an “AI company.”
Legacy tech giants like Google, Amazon, Meta and Nvidia raced to keep up, building their own AI products. Meta in particular, which is going all-in on AI development with its Meta Superintelligence Labs (MSL) division, exceeded Q2 2025 revenue estimates and surpassed profit projections for the 10th quarter in a row. As for Nvidia — the main supplier of the computer chips needed to train AI models — it is now among the most valuable companies listed on the public stock exchange and became the first publicly traded firm to reach $4 trillion in market capitalization, all thanks to the growing AI space.
“I’ve seen deals where there’s no revenue, there’s no customers. We don’t know if the market is going to want this, if people are going to want this. And yet they’re able to raise millions of dollars,” Gayle Jennings-O’Byrne, a venture capitalist and CEO of Wocstar Capital, told Built In. “Everyone’s rushing in because they don’t want to miss out on ‘the next big thing.’”
Long-term, many experts see AI as a generation-defining technology, claiming it will revolutionize modern life in the same way mobile phones, the internet and electricity did. In some ways, it already is.
But some doubts are starting to overshadow the initial excitement around AI, as concerns mount over whether these companies will ever recoup the billions invested in its development — or if those returns will materialize anytime soon.
Nvidia shares rise after strong results ease 'AI bubble' concerns
Chip giant Nvidia has reported stronger-than-expected revenues, easing investor concerns about heavy artificial intelligence (AI) spending that have unsettled markets.
The company said revenue for the three months to October jumped 62% to $57bn, driven by demand for its chips used in AI data centres. Sales from that division rose 66% to more than $51bn.
Fourth-quarter sales forecasts in the range of $65bn also topped estimates, sending shares in Nvidia about 4% higher in after-hours trading.
"There's been a lot of talk about an AI bubble. From our vantage point, we see something very different," said chief executive Jensen Huang.
In a statement, Mr Huang said sales of its AI Blackwell systems were "off the charts" and that "cloud GPUs [graphics processing units] are sold out".
"We excel at every phase of AI."
Nvidia, the world's most valuable company, makes chips that are crucial for AI data centres and is seen as a bellwether for the AI boom.
Its latest results were under even more attention than usual on Wall Street amid mounting concern that AI stocks are overvalued - fears that may persist despite the blockbuster results.
Those fears had fuelled four consecutive daily drops in the S&P 500 index leading up to Wednesday, as questions swirl about returns on AI investments. The benchmark index has fallen nearly 3% so far in November.
Some analysts have compared the surge in AI stocks to the dotcom boom of the late 1990s. This saw the values of early internet companies soar amid a wave of optimism over the then-new technology before the bubble burst in early 2000.
This collapse in share prices led to some companies going bust, and also hit the value of people's savings including their pension funds.
The bar was high heading into Nvidia's results.
Adam Turnquist, chief technical strategist for LPL Financial, said the question was not whether the company would beat expectations, "but by how much".
Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: "While AI valuations are dominating the news feeds, Nvidia is going about its business in style."
He said valuations for certain areas of the AI sector "needed to take a breather, but Nvidia is not in that camp".
Mr Huang had previously said he expected $500bn in AI chip orders through next year. Investors were looking for details about when the company expects those revenues will come to fruition, and how it plans to fulfill the orders.
Colette Kress, Nvidia's chief financial officer, told analysts the company would "probably" be taking more orders on top of the $500bn that had already been announced.
But she also expressed disappointment about regulatory limits that stymie the company's ability to export its chips to China, saying the US "must win the support of every developer" including those in China.
She said Nvidia was "committed to continued engagement" with the American and Chinese governments.
Earlier on Wednesday at the US-Saudi Investment Forum in Washington, Mr Huang joined Elon Musk to announce a massive data centre complex in Saudi Arabia that will have Musk's AI company, xAI, as its first customer.
The facility will be outfitted with hundreds of thousands of Nvidia chips.
The Wall Street Journal reported the US Commerce Department has approved the sale of up to 70,000 advanced AI chips to state-backed companies in Saudi Arabia and the United Arab Emirates, reversing an earlier decision.
The agreement was brokered following talks between US President Donald Trump and Saudi Arabia's Crown Prince, Mohammed bin Salman, who visited the White House this week.
The titans of the technology sector are ramping up their spending on AI, as they rush to reap the benefits of a boom that has pushed stocks to record highs.Earnings reports from Meta, Alphabet and Microsoft last month reaffirmed the colossal amounts of money these firms are shelling out for everything from data centres to chips.Sundar Pichai, the head of Google's parent firm Alphabet, told the BBC that while the growth of AI investment had been an "extraordinary moment", there was some "irrationality" in the current AI boom. His comments came amid other warnings from industry leaders.
Simon French, chief economist at Panmure Liberum, said there were some parallels with the dotcom bubble of 25 years ago.
"The issue is not so much these big cash generative companies like Nvidia, but it's the wider part of the tech ecosystem, quite a lot of which isn't currently profitable," he told the BBC's Today programme.
Nvidia is at the heart of a web of deals among key players in the AI space such as OpenAI, Anthropic and xAI.
The deals have drawn scrutiny for their circular nature, as AI firms increasingly invest in one another. The agreements include Nvidia's $100bn investment in OpenAI, the firm behind ChatGPT.
Eileen Burbidge, a tech investor and founding partner at Passion Capital, told the Today programme: "A lot of what is fuelling some of the scepticism or concern about a bubble is that there is seen to be a lot of circular deals going on, whereby Nvidia is committing to invest in a company which in turn is committing to invest in Nvidia or is committing to buy Nvidia chips.
"So it goes round and round, maybe with one or two other people inside the circle, but yes it is about 10 to 20 companies that all seem to have these deals going back and forth."
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