The world is witnessing an artificial intelligence boom driven by slew of deals among tech companies.
As a result of these massive investments, the valuations of tech giants have spiked to unprecedented levels, raising the concerns among experts of creating and bursting the AI bubble.
According to an analysis conducted by MacroStrategy Partnership, the current AI bubble is larger than the past crises, 17-times more bigger than the 1990s dot-com bubble and four times the scale of the 2008 financial crisis.
Recently, the Bank of England and IMF have joined the circle, raising the red flags over the AI investment bubble.
The Bank of England officials on Wednesday raised the growing concern over surging tech stock prices driven by the AI are on the verge of bursting.
“The risk of a sharp market correction has increased,” the UK central bank said.
According to IMF Managing Director Kristalina Georgieva, optimism surrounding the productivity-enhancing potential of AI has skyrocketed global stock prices. Unfortunately, these financial conditions “could turn abruptly.”
At the heart of the AI boom lies the tangled web of deals among tech giants, leading to high valuations and surging stock prices.
OpenAI, the maker of ChatGPT, is at the center of these deals. Recently, OpenAI and Advanced Micro Devices (AMD) have entered into a multibillion-dollar partnership.
Under this agreement, OpenAI will buy AMD’s chips from AMD, Nvidia rival, in turn the company will be entitled to take a stake of as much as 10 percent in the semiconductor giant.
Moreover, OpenAI has received investment of $100 billion from Nvidia for establishing cutting-edge 10 gigawatts of AI data centers powered with Nvidia’s powerful chips.
Another tech giant Microsoft has poured major investments in Oracle, which has a $300 billion deal with OpenAI too.
OpenAI and Oracle with Japan’s SoftBank group planned to invest $500 billion on additional data centers in a project named Stargate. Besides, Nvidia is a major technology partner to Stargate
During a panel discussion at Silicon Valley’s Computer History Museum, Jerry Kaplan, AI entrepreneur, talked about the AI bubble.
According to Kaplan, if the bubble bursts, there is so much more to lose, given the amount of money that has been invested in AI infrastructure.
“When [the bubble] breaks, it's going to be really bad, and not just for people in AI. It's going to drag down the rest of the economy,” he said.
Mr Kaplan also warns that the AI sector is also showing troubling signs of overheating. Companies are also interested in securing deals and profit bonanza while neglecting the ecological disaster that boom can bring.
According to Jeff Boudier, "The thing that comforts me is that the internet was built on the ashes of the over-investment into the telecom infrastructure of yesterday.”
"If there is overinvestment into infrastructure for AI workloads, there may be financial risks tied to it," he said.
This year’s American stock market is experiencing a surge due to AI-related enterprises which gained 80 percent of profits.
According to Gartner, the worldwide investment on AI will spike to $1.5 trillion before the end of 2025.
