AI BUBBLE BUST IMMINENT HERE’S WHY

Written by Michael Thervil

AI BUBBLE BUST IMMINENT HERE’S WHY | WRITTEN BY MICHAEL THERVIL;

[AI bubble bust] With a potential bust in the sector of Artificial Intelligence looming, politicians and American business are questioning the surge in investments in the AI sector. New York’s 14^th District Congresswomen Alexandria Ocasio-Cortez stated the following as she spoke on AI at a hearing:

“The entire U.S. economy growth can be tracked down to seven companies and their AI growth, specifically. At least 40% of economic growth this year is attributed to these companies alone. 80% of stock gains this year came from AI companies. But people are justifying these levels of investment because of the promises that the CEO’s make, that there will be a return on that investment. So, for a company like OpenAI, their value is based upon the expectation that they’re going to figure out how to make a profit out of it and they haven’t.”

Since 2022, stock in AI played a role in increasing 75% of standard and poor’s 500 (S&P 500) returns, fostered 80% growth and earnings, and accounted for 90% of OpenAI’s ChatGPT capital spending. However, it appears that all has turned around in the last two days with the S&P 500 reporting that the AI sector is losing an estimated $2 trillion dollars. With this outcome comes the questioning of what is known as “Hyperscalering”. Hyperscaling is a risk management technique that a business uses that allows it to purchase and lock in the price of an item in the present against a future price increase under contract to purchase more of the said item thought to bolster the business output in the long term.

This is important to understand because companies such as Microsoft, META, Oracle, and Amazon have invested roughly $320 billion to shield themselves from potential future profit loss. Again, the question is why? For many analysts, AI companies are engaging in hyperscaling due to fears of not having enough energy. Hence without heavy investment in the energy sector, AI companies in America run the risk of huge profit loss. Ergo, this leads us to what many market speculators fear the most – the AI bubble bursting. If this occurs, it will be worse than the “Dot-com” burst of the early 2000s.

Like the Dot-com bust of the early 2000's, the AI boom and now pending bust in America is fueled by four things: Overvaluation, Over investing, Economic uncertainty, and gambling. According to some, the AI market is not only actually worth less than it currently is, but it's being propped up by artificial means and the driving force behind all of this is over valuation of what AI can do for business and consumers alike. Due to this fact it attracts investors who over invested in the AI sector and that in conjunction with overvaluation made Artificial Intelligence appear to be more than what it was to the ignorant and the short sighted. This allowed AI companies like OpenAI and banks that have spent a whopping $200 billion in investments to “hedge” or in other words gamble on the potential future profits that could be generated by pushing AI into the forefront of all industries and consumers.

This worked until China unleashed both DeepSeek and Manus AI due to American led chip and semiconductor sanctions. DeepSeek and Manus AI are both open-sourced AI platforms that are constructed by slightly less advanced chips formed in clusters which make them a more cost effective and attractive alternative that produces similar results to the advanced chips made by TSMC and Nvidia. All of this in conjunction with economic uncertainty on the global stage makes the fiscal environment highly AI sector bust like its Dot-com predecessor. While it's impossible for anyone to say yes with a zero margin of error, the probability appears to be high and will continue to increase if AI companies and investors continue to fail when it comes to finding a solution. The only question left is:

“If the AI tech bubble were to burst, will the American government issue a bail out to those affected?”