Is the AI Bubble About to Burst?

­It’s a question I’ve been avoiding for a while now, and it’s no idle chatter – the tech world hasn’t seen this sort of indiscriminate investment since the internet bubble went pop. But just how indiscriminate is the AI speculation, and are we in store for another epic collapse?

Just recently, OpenAI signed a $38B cloud computing deal with Amazon to access AWS compute. Meanwhile, the company that owns a $135 billion stake, or 27% of OpenAI, Microsoft, recently finalized three multi-billion dollar AI deals in a single day.

Nearly every major tech company is throwing stupid money at artificial intelligence, hoping to harness the biggest zeitgeist since the world wide web. And at least superficially, this bears some resemblance to the last drunk spending spree, where angel investors set off a speculative frenzy, tossing cash at anything with a .com.

An estimated $256 billion fueled the dotcom bubble, long before most people knew how the internet would shake – would consumers flock to pets.com or a company that bears the name of a tropical rainforest? Would TheGlobe.com become the gold standard for social media?

Before the turn of the century, internet companies soaked up an absurd 39% of all venture capital investments, and excitement (and speculation) was understandably high. We all thought we were living through the greatest paradigm shift since the industrial revolution, and we weren’t wrong. It’s just that most of us couldn’t pinpoint what the internet was exactly and its true potential.

One need only check out the popular entertainment of the time – the internet was a magical playground, with endless possibilities, and hackers were charismatic superstars. Nothing seemed impossible.

But fueling all this excitement was mere speculation. Much of the investment capital had little to do with value. In some cases, the IPOs had no tangible product (or even a functional website).

Last summer, OpenAI CEO, Sam Altman, put it succinctly when he said that when bubbles happen, “smart people get overexcited about a kernel of truth.”

And that’s the biggest difference between the dotcom bubble and the AI frenzy of today. Yes, AI is a mysterious template, and no one knows what it’ll lead to (or the consequences of creating self-aware entities that outpace humanity in every arena).

Federal Reserve Chair Jerome Powell noted that “If you go back to the '90s and the dot-com [era], these were ideas rather than companies.” 

Whereas the AI companies of today are already providing tangible value to both consumers and industry, and many have sound business models and profits (or a clear path to achieve it).

Yes, AI investment is high – maybe excessively so – but I’m not convinced its mere speculation.