- Many technology leaders agree that there is an AI bubble
- If this breaks out, devastating effects could hit the economy.
- The Bank of England is the latest to warn of the risks
The murmurs about “an AI bubble” continue: Jeff Bezos has admitted it, Sam Altman has admitted it, and now, financial institutions are beginning to sound the alarm about the potential catastrophic collapse the economy will face if the bubble bursts.
The Bank of England’s financial policy committee warned that the “risk of a sharp market correction” has increased and that investors have not fully taken these risks into account.
“By a number of measures, stock market valuations appear overstated, particularly for technology companies focused on artificial intelligence. This…leaves stock markets particularly exposed if expectations about the impact of AI become less optimistic,” The Guardian reports.
Rise and fall
Huge circular deals between Nvidia, AMD, OpenAI and Oracle have committed billions of dollars between the companies to fund chips, infrastructure and AI models, raising serious concerns;
“Current valuations are heading toward levels we saw during the Internet optimism 25 years ago… If a sharp correction were to occur, tighter financial conditions could slow global growth, expose vulnerabilities and make life especially difficult for developing countries,” warned IMF Director Kristalina Georgieva.
Some research has even claimed that AI-related capital expenditures have overtaken consumer spending in the US as the main 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 capex growth since the launch of ChatGPT in November 2022,” said Michael Cembalest, president of JP Morgan Asset Management Strategy.
That’s a lot of expense considering that research recently revealed that almost all (95%) generative AI pilots are failing. If investors don’t start seeing profits soon, stock market valuations could take a hit.
Actual use cases for AI have also failed, with Deloitte being forced to reimburse the Australian government after it used AI to produce an error-riddled report that included false citations, false footnotes and fabricated court citations.
Although it appears that AI spending will continue to increase for the foreseeable future, some reports indicate that AI use is actually declining in large organizations, which could signal the beginning of the end of the AI boom.
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