The AI bubble, explained

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The AI market is now a bubble, and even insiders are admitting it. Nvidia is investing in its own customers, who in turn purchase more of the firm’s chips. Meanwhile AMD is offering OpenAI partial ownership in a chip purchase deal. This web of circular investments and deals is fuelling a rapid rise in stock prices.

At the centre is OpenAI, which has organised over $1trn in computing deals, despite the company currently generating less than $13bn in annual revenue. It’s also losing money, while CEO Sam Altman admitted that becoming profitable was not in his top 10 concerns. Which is understandable, given OpenAI’s $500bn valuation, making it the most valuable company to have never turned a profit.

The company expects its AI tools to increase future revenue by boosting corporate productivity. But reports from MIT and Harvard show that currently many AI projects in firms are unsuccessful, or actually damaging to productivity.

Circular contracts mean if OpenAI, or a similar firm begins to struggle financially, the whole industry will suffer. Given that the AI boom is currently a key driver of U.S. economic growth, a burst bubble could trigger both a crash in asset prices and a broader economic downturn. Supporters of the industry say that the race for Artificial General Intelligence is worth the risk. Do you agree?

References

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