"First, AI is almost certainly in what economists call an asset bubble or a speculative bubble. As the name suggests, this is when asset prices soar well above their fundamental value. A classic example of this kind of bubble is the Dutch "tulip mania" of the 17 th century, when speculators drove up the price of tulip bulbs to astronomical heights, convinced that there would always be someone willing to pay more than they had."
"As I write, Nvidia is trading at 50 times earnings, Tesla at an astounding 200 times, despite falling revenues, while the rest of the Magnificent 7 (Google, Amazon, Apple, Microsoft, and Meta) are enjoying significant boosts thanks to the bets they are taking on an AI-led future. The chances of this not being a bubble are between slim and none-and while Slim hasn't quite left town, he's booked his ticket and is packing his bags."
AI currently exhibits multiple concurrent bubbles. One is an asset or speculative bubble, where company valuations far exceed fundamentals, exemplified by Nvidia trading at 50 times earnings and Tesla at 200 times despite falling revenues. Major tech firms are receiving valuation boosts from AI-related bets. A second is an infrastructure bubble, with huge spending on GPUs, power, and cooling capacity that may exceed future demand. Historical parallels include 17th-century tulip mania, railroad overbuilding in the late 1800s, and excess fiber-optic rollout in the 1990s. McKinsey cites a multitrillion-dollar race to scale AI data centers.
Read at Fast Company
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