Editorial: The AI Bubble – When Promise Turns Into Peril

Tech giants are racing headlong into an investment frenzy, pouring trillions of dollars into data centers and artificial intelligence applications, as if the sky were the limit. Yet behind these dazzling numbers lurks a greater danger: an investment bubble that could trigger the next global financial crisis, reminiscent of the dot-com collapse at the turn of the millennium.

A Reuters Breakingviews report highlights the stark gap between market valuations and real economic returns. Nvidia’s share price has surged 350-fold in a decade, while Oracle’s earnings forecast instantly boosted its market value by hundreds of billions. But the reality is sobering: studies show that 95% of companies adopting AI have yet to generate any measurable returns. This disconnect between “paper gains” on Wall Street and the absence of tangible revenues is the classic recipe for bubbles.

Capital expenditures by Amazon, Alphabet, and Microsoft have jumped to nearly $300 billion this year, with projections of $5 trillion in AI-related spending by 2030. To justify such sums, returns would have to equal almost 10% of U.S. GDP—an implausible scenario. If these investments collapse or underperform, the fallout will not be confined to Silicon Valley; it will ripple through global markets, just as the subprime mortgage crisis did in 2008.

Leaders’ Dilemma

What makes this even more perilous is that tech executives admit the risks, yet proceed anyway, claiming that “the risk of falling behind outweighs the risk of overspending.” This is the trap: should investors join the race for short-term gains, knowing they might face devastating losses, or step back and risk irrelevance? It is the modern version of the “innovator’s dilemma,” compounded by a prisoner’s dilemma that locks everyone into the bubble.

Markets today echo the euphoria of the late 1990s, when telecom firms spent extravagantly on 3G networks that quickly lost their value. Within a few years, investors suffered historic losses. History reminds us that unchecked technological exuberance almost always ends in collapse.

Finally, Artificial intelligence may indeed transform the global economy, but investing at this breakneck pace—without clear returns or safeguards—risks turning a tool of progress into a trigger for crisis. Unless stricter standards are applied to measure real economic value and rein in spending, we may soon awaken to a “Silicon Valley bubble” where promises evaporate and only losses remain.