- Many tech leaders agree on the existence of an AI bubble
- If this breaks out, it could have devastating effects on the economy.
- Bank of England latest to warn of risks
Rumors continue to swirl about “an AI bubble” – Jeff Bezos admitted it, Sam Altman admitted it, and now financial institutions are starting to sound the alarm about the potential catastrophic crash the economy would face if the bubble bursts.
The Bank of England’s financial policy committee warned that the “risk of a sharp market correction” had increased and that investors had not fully taken these risks into account.
“By a number of measures, stock market valuations appear stretched, particularly for technology companies focused on artificial intelligence. This… leaves stock markets particularly exposed if expectations about the impact of AI become less optimistic,” reports The Guardian.
Boom and bust
Huge circular deals between Nvidia, AMD, OpenAI and Oracle have seen billions of dollars committed between the companies to fund AI chips, infrastructure and models – leading to serious concerns;
“Current valuations are heading towards the levels we saw during the optimism around the Internet 25 years ago… If a sharp correction were to occur, tighter financial conditions could dampen global growth, expose vulnerabilities and make life particularly difficult for developing countries,” warned IMF Director Kristalina Georgieva.
Some research even claims that AI-related capital spending has overtaken the U.S. consumer as the primary driver of economic growth in the first half of 2025.
“AI-related stocks have accounted for 75% of S&P 500 returns, 80% of earnings growth and 90% of capital spending growth since ChatGPT launched in November 2022,” said Michael Cembalest, president of JP Morgan Asset Management Strategy.
This is a considerable sum considering that research recently revealed that almost all (95%) generative AI pilot projects fail. If investors don’t start making profits soon, stock valuations could suffer.
Real-world AI use cases have also faltered, with Deloitte forced to reimburse the Australian government after using AI to produce an error-ridden report that included false citations, false footnotes and fabricated court citations.
Although AI spending is expected to continue to rise for the foreseeable future, some reports indicate that AI use is actually declining in large organizations – which could mark the beginning of the end of the AI boom.
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