By Doug Stephens
There’s been intense speculation about whether we’re on the verge of the AI bubble bursting. And while that’s not the most important question, let’s address it by looking at what typically drives market bubbles. Whether it’s the stock market crash of 1929, the dot-com collapse of the early 2000s, or the subprime loan implosion of 2008, the underlying triggers are strikingly consistent: irrational market valuations, rampant investor speculation, excessive corporate leverage, and a lack of effective regulation. Pick almost any bubble and you’ll find some or all of these factors at play.
In today’s AI market, all those ingredients are present. Valuations are untethered from actual performance, and investor speculation is at a fever pitch. Then there’s the extraordinary leverage—OpenAI, for example, is reportedly losing billions while proposing to spend $1.4 trillion on compute infrastructure, even suggesting that the U.S. government should backstop its plans. Add to that a troubling absence of regulation—and even, as Michael Burry, the investor made famous in the movie The Big Short, points out, a lack of adherence to generally accepted accounting principles among hyperscaling companies like Amazon, Meta and Google—and the recipe is complete. When the pot boils over is anyone’s guess, but few dispute that it will.
The Questions We’re Not Asking
But whether or not a bubble happens is the wrong question to begin with. Bubbles are cyclical; they rise and burst, leaving behind both casualties and survivors. The dot-com crash destroyed thousands of companies, but giants like Microsoft, Amazon and Apple went on to dominate the next era. The same pattern is likely to repeat with AI.
The more important question is what will make this bubble different—and here there are several reasons for concern:
- The Scale of Leverage: What happens when trillions (not billions) of dollars in mostly leveraged value vanish? With the Magnificent Ten tech firms’ combined market values totalling in excess of 70 percent of America’s annual GDP, what’s the blast radius across interconnected banks, governments, suppliers, and investors—pension funds, 401(k)s, and beyond? Who absorbs the shock, and does it trigger a broader economic crisis?
- An Already Fragile Economy: How does such a collapse of that magnitude hit an economy already reeling from high inflation driven by tariffs, with layoffs at their highest level since 2003, manufacturing orders falling, unemployment rising, and record levels of consumer and corporate debt?
- A Crisis of Leadership and Trust: Finally, what happens when this economic fragility collides with political instability? The United States appears in a slipstream toward authoritarianism, led by a mercurial, self-interested figure with a bottomless tolerance for national or allied suffering. Public trust in the U.S. government—both domestic and global—is at historic lows. After the 2008 financial crisis, America led the world out of recession. Could it still do so now? Does it have enough remaining trust or credibility? And moreover, how does a nation divided over something as basic as feeding its own poor manage an implosion triggered by a handful of companies losing half their market cap overnight?
Like all bubbles, the AI bubble will burst. When it does, the economic chaos it inflicts could be significant – if not historic. But I think most of us already know this. So, the real question isn’t will the bubble burst. It’s when the bubble bursts… then what?
Doug Stephens is one of the world’s foremost retail industry futurists. His intellectual work and thinking have influenced many of the world’s best-known retailers, agencies and brands including Walmart, Google, Home Depot, LVMH, BMW, Coca Cola and Microsoft. As a global influencer Doug has been called “the futurist that futurists follow”.
He is the author of three internationally bestselling books and is regularly featured in many of the world’s leading publications and media outlets including The New York Times, The BBC, TechCrunch, The Wall Street Journal and Fast Company.