Discussion - has the AI bubble already burst?

[Xebec]

I've been thinking about the large company money exchanges going on between OpenAI, Microsoft, Nvidia, AMD, and others.. and I think there's a case that the bubble has already bust, we just don't see it reflected in stock pricing or corporate profits just yet. Here's my thinking:

- Nvidia is effectively giving OpenAI (and others) a "rebate" on their GPUs by seeding them money. One source I heard claimed their outward investments equate to about a 25% of the cost of sold high end AI GPU hardware.

- OpenAI is expected to have ~$12B in revenue for 2025, but lost $13B just in the first half of 2025; with spending projected upward significantly for the next 5 years.
- OpenAI's cash position is constantly dwindling; they had "$10B to $20B in cash at end of 2024", external investments are required to keep them afloat.

- Global politics and the trade wars have meant the total addressable market (TAM) is shrinking for companies like OpenAI. At the same time, this is forcing major markets like China and other countries to invest in their own AI.. further reducing the AI TAM potential for OpenAI, Google, Meta, etc. This also means companies like OpenAI are competing against foreign governments..

- Some companies are already starting to give up (smaller AI efforts) and/or slow down AI efforts (Apple).

- OpenAI is starting to exit the "build it and they will come" phase, with features like news being shared with users who log into ChatGPT, based on their past chat history. I interpret this as the growth isn't coming fast enough organically and they're trying to create demand.

- There are physical hard caps on how fast AI can grow regardless of demand: Energy, capacity at TSMC, datacenter capacity (even Oracle's DCs won't come cheap), etc.

..

In summary, I think Nvidia's (and others) investment cycles are merely buying time hoping that a small economic miracle (10X growth in 3 years) will come to justify those investments. The fundamentals of AI revenue aren't looking solid now or near term - as AI is being scaled with the intent to be used "by billions of people" when only millions are finding economic value in it currently.

I recognize this is a bit pessimistic, but I'd appreciate thoughts on this topic.


P.S. I don't own any of these AI companies directly, though I do own broad mutual funds that would be affected by pricing here. I also do not short stocks - I just wanted a disucssion here as I like to learn about fundmentals and imagine what's next. (AI or anything else driving funding for new nodes is exciting to me).

 

[KevinK]

AI is being scaled with the intent to be used "by billions of people" when only millions are finding economic value in it currently.

I recognize this is a bit pessimistic, but I'd appreciate thoughts on this topic.

I was at a Rotary meeting / dinner in Nairobi, Kenya last week. I was at the end of the table talking to 3 business folks there (2 sales people for paper good and a chemical engineer) - all three were about 30 years old, had AI subscriptions, and claimed it was essential for work an home. A few month ago I was at my Aunt's 100th birthday party in Detroit. I was talking with 5 of the kids of my cousins, again all I their early to mid-30s. 3 of the 5 had AI subscriptions. The remaining two were considering. I'm seeing AI picking up steam in a lot of unusual places. Who knows how big the TAM is.

 

[lefty]

It will burst eventually, but it's not happening anytime soon. The amount of angel investment money available to these companies is huge - they can last years without needing to generate profits

 

[count]

We won't know if the AI bubble has burst except in the rear view mirror.

I am very cautious about making any investments in AI related stocks right now (probably too cautious), but I don't believe the bubble is done inflating. Especially when the fed is cutting and not raising rates.

 

[count]

I was at a Rotary meeting / dinner in Nairobi, Kenya last week. I was at the end of the table talking to 3 business folks there (2 sales people for paper good and a chemical engineer) - all three were about 30 years old, had AI subscriptions, and claimed it was essential for work an home. A few month ago I was at my Aunt's 100th birthday party in Detroit. I was talking with 5 of the kids of my cousins, again all I their early to mid-30s. 3 of the 5 had AI subscriptions. The remaining two were considering. I'm seeing AI picking up steam in a lot of unusual places. Who knows how big the TAM is.

Basically anyone who speaks English as a second language is finding AI critical for business and interaction with the English speaking world.

What you will find on Reddit, especially in subs targeted towards people in India/Africa/Middle East, is everyone is using AI to help write their posts. If you know some of the words but not all of the words to communicate your idea, AI is really good at filling in the blanks and giving you voice that presents like a native speaker.

 

[Daniel Nenni]

If you look at the AI bubble as both infrastructure build and inference support the bubble will be years in the making. The AI bubble is not just semiconductors, it will be across many industries and will literally change how we live our lives. Much like the internet and smartphones did.

Right now the AI bubble is mostly PR related. Everyone is announcing staggering amounts of AI related spends. Some companies are even morphing into AI companies similar to what happened during the Dot Com bubble.

It will be interesting to see how this plays out but I doubt AI will be a big bubble pop like Dot Com or the other bubbles we have experienced. It will be more of a transformation for the greater good of the world, hopefully.

 

[Daniel Nenni]

Don’t fear the AI bubble, it’s about to unlock an $8 trillion opportunity according to Goldman Sachs​

• The AI boom is sustainable, three Wall Street analysts argue in research notes this morning. Productivity gains from AI are expected to far outweigh current spending, they say, and capital expenditure on data centers and chips remains robust.

Stop worrying about the bubble in AI—its growth is sustainable, three Wall Street analysts from Goldman Sachs, JPMorgan, and Wedbush argued this morning in notes seen by Fortune.

https://www.yahoo.com/finance/news/don-t-fear-ai-bubble-105043701.html

 

[Brady]

Don’t fear the AI bubble, it’s about to unlock an $8 trillion opportunity according to Goldman Sachs​

• The AI boom is sustainable, three Wall Street analysts argue in research notes this morning. Productivity gains from AI are expected to far outweigh current spending, they say, and capital expenditure on data centers and chips remains robust.

Stop worrying about the bubble in AI—its growth is sustainable, three Wall Street analysts from Goldman Sachs, JPMorgan, and Wedbush argued this morning in notes seen by Fortune.

https://www.yahoo.com/finance/news/don-t-fear-ai-bubble-105043701.html

Where’s our Meredith Whitney?

Whitney issued a particularly pessimistic, but accurate, research report on Citigroup on October 31, 2007, to which many Wall Street analysts, and the news media, paid attention. She noted that the bank's dividends paid out to investors were greater than its profits at the time, and made the case that this would lead to bankruptcy.[12] Shortly after the report's publication and a sharp drop in Citigroup's stock, Charles Prince resigned as the bank's CEO and his successor slashed the dividend.[13][14] Earlier that year, Forbes magazine had listed Whitney as the second-best stock picker in the capital-market industry.[15] Citigroup stock went on to lose 97% of its value by early 2009.[16]

The problem is the keystones of this inevitable bubble are private startups who don’t have the same transparency requirements as public companies.