- Many tech leaders agree there is an AI bubble
- If this bursts, devastating affects could ripple through the economy
- The Bank of England is the latest to warn of the risks
Mutterings continue to swirl about “an AI bubble” – Jeff Bezos has admitted it, Sam Altman has admitted it, and now, financial institutions are beginning to sound the alarm over the potential catastrophic crash the economy faces if the bubble bursts.
The Bank of England’s financial policy committee warned the ‘risk of sharp market correction’ has increased, and that investors have not fully accounted for these risks.
“On a number of measures, equity market valuations appear stretched, particularly for technology companies focused on artificial intelligence. This … leaves equity markets particularly exposed should expectations around the impact of AI become less optimistic,” The Guardian reports.
Boom and bust
Huge circular deals between Nvidia, AMD, OpenAI, and Oracle have seen billions of dollars committed between the firms to fund chips, infrastructure, and AI models – which has sparked serious concern;
“Today’s valuations are heading toward levels we saw during the bullishness about the internet 25 years ago… If a sharp correction were to occur, tighter financial conditions could drag down world growth, expose vulnerabilities, and make life especially tough for developing countries,” warned the head of the IMF, Kristalina Georgieva .
Some research has even claimed AI-related capital expenditures have surpassed the consumer in the US 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, chairman of JP Morgan Asset Management Strategy.
That’s a hell of a lot of spending considering research recently revealed that almost all (95%) of generative AI pilots are failing. If investors don’t start to see profit soon, the stock market valuations could suffer.
Real use-cases of AI have been faltering too, with Deloitte forced to refund the Australian government after it used AI to produce an error-strewn report that included false citations, fake footnotes, and made-up court quotes.
Although AI spending looks set to keep increasing for the foreseeable future, some reports indicate AI use is actually now declining in large organizations – which could signal the beginning of the end for the AI boom.
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