The global artificial intelligence (AI) frenzy is accelerating, driving up valuations and investments, with unprecedented expansion seen in chip demand to startup funding. Experts warn that this surge may be brewing a bubble. When capital pours in rapidly, companies excessively chase the “AI label” without a solid profit model, infrastructure development surpasses demand, and challenges from regulations and interest rates persist, the market may repeat the overheating risks seen in the Internet era.
On Friday, at the Italian Tech Week held in Turin, Italy, Goldman Sachs CEO David Solomon stated that after years of record highs in the stock market driven by the AI frenzy, the market may experience a “pullback” in the next year or two.
Solomon mentioned, “The market operates in cycles. Historically, whenever a new technology accelerates, creating a lot of capital formation and consequently spawning a lot of interested startups, you usually see the market evolve beyond its potential… There will inevitably be winners and losers.”
CNBC reported that in recent years, the AI frenzy has swept global markets, bringing forth numerous new technologies, billion-dollar transactions, and the continued rise of ChatGPT developer OpenAI. Investors are heavily betting on this technology, pouring funds into stocks of companies like Microsoft, Alphabet, Palantir, and Nvidia.
Solomon noted, “I wouldn’t use the word ‘bubble’ because I don’t know what the future holds, but I know people take risks out of excitement.” He added, “When investors are excited, they often consider the possible good outcomes and overlook the things that should be approached with caution and potentially could go wrong.”
“The market will readjust, be suppressed at some point, and eventually there will be a correction. The depth of the correction depends on how long this bull market cycle can last,” he further explained.
Reflecting on the late 1990s and early 2000s Internet boom, which gave birth to some of the largest companies globally but also led investors to suffer heavy losses in the so-called “dot-com bubble.”
“You will see similar phenomena,” he stated. “If there’s a downturn in the stock market in the next 12 to 24 months, it wouldn’t surprise me.” He believes, “The significant capital already invested will eventually not yield returns, and when that happens, people’s emotions won’t be pleasant.”
While Solomon predicts some capital losses, he also seems optimistic about artificial intelligence.
Amazon founder Jeff Bezos, at the same event on Friday, also remarked that artificial intelligence is currently in an “industry bubble.”
OpenAI CEO Sam Altman last month mentioned in a media interview that with the surge in industry spending, the notion of “
an artificial intelligence bubble forming”
was brought up. He also cited the conditions of the “dot-com bubble” in the 1990s, suggesting that AI is “possibly in a bubble” currently.
Meanwhile, Karim Moussalem, Chief Investment Officer of Selwood Asset Management based in London, warned that AI investments are about to face “significant risks” and could rapidly collapse. “The AI investment frenzy is rapidly intensifying, showing signs of speculative mania rarely seen in market history,” Moussalem posted on LinkedIn.