Artificial intelligence may well be the future of business and the wider economy, yet the sky-high stock prices it’s generating may still represent an unsustainable bubble.
Today’s constant fretting about whether frothy tech stocks are in a bubble is rooted in fears that AI may not live up to the hype and that business returns will therefore never justify the blistering investment we’re seeing on advanced chips as well as the infrastructure and energy needed to support AI’s vast processing needs.
Acres of columns will be written on the “AI hype” question in the coming months, with most likely concluding that “it’s too early to tell”.
Some early studies, opens new tab say companies are not yet reaping significant returns from AI, even as an estimated $3 trillion of investment is expected to be ploughed into the technology over the next three years. But generating returns was always going to take time.
As to the consensus view? Maybe that’s best left to AI itself.
In response to the question “Is AI a bubble?”, Google’s “AI Mode” concluded: “While the core AI technology is considered a genuine and potentially revolutionary development, there is significant debate about whether the current market valuations are sustainable or if the sector is experiencing a bubble-like period of over-exuberance and speculation.”
Productivity gains and revenue growth over the coming years will ultimately determine AI’s value, it adds, clearly reluctant to talk itself out of a job just yet.
Perhaps it’s more useful to look at the lessons of past bubbles. History suggests that revolutionary technologies typically attract a flood of capital, not all of it “smart money”.
So even if the technology endures and ultimately transforms the world, some of the priciest stocks from the bubble years can still be left high and dry. The companies may not go bankrupt, but over-eager valuations can mean their share prices take years to recover – if they ever do.