'It's going to be really bad': Fears over AI bubble bursting grow in Silicon Valley
1 day ago Share Save Lily Jamali Technology correspondent, San Francisco Share Save
Getty Images Silicon Valley is home to many major tech firms, including Apple's circular headquarters
At OpenAI's DevDay this week, OpenAI boss Sam Altman did what American tech bosses rarely do these days: he actually answered questions from reporters. "I know it's tempting to write the bubble story," Mr Altman told me as he sat flanked by his top lieutenants. "In fact, there are many parts of AI that I think are kind of bubbly right now." In Silicon Valley, the debate over whether AI companies are overvalued has taken on a new urgency. Sceptics are privately - and some now publicly - asking whether the rapid rise in the value of AI tech companies may be, at least in part, the result of what they call "financial engineering". In other words - there are fears these companies are overvalued.
Mr Altman said he expected investors would make some bad calls and silly start-ups would walk away with crazy money. But with OpenAI, he told me, "there's something real happening here". Not everyone is convinced. In recent days, warnings of an AI bubble have come from the Bank of England, the International Monetary Fund, as well as JP Morgan boss Jamie Dimon who told the BBC "the level of uncertainty should be higher in most people's minds". And here, in what is often considered the tech capital of the world, concerns are growing. At a panel discussion at Silicon Valley's Computer History Museum this week, early AI entrepreneur Jerry Kaplan told a packed audience he has lived through four bubbles.
Getty Images Jerry Kaplan founded Go Corporation, which developed early tablet computers
He's especially concerned now given the magnitude of money on the table as compared to the dot-com boom. There's so much more to lose. "When [the bubble] breaks, it's going to be really bad, and not just for people in AI," he said. "It's going to drag down the rest of the economy." However, at the Stanford Graduate School of Business, which has minted its fair share of tech entrepreneurs, Prof Anat Admati says while there have been many attempts to model when we're in the bubble, it can be a futile exercise. "It is very hard to time a bubble," Prof Admati told me. "And you can't say with certainty you were in one until after the bubble has burst." But the data is concerning to many. AI-related enterprises have accounted for 80% of the stunning gains in the American stock market this year - and Gartner estimates global spending on AI will likely reach a whopping $1.5tn (£1.1tn) before 2025 is out.
Tangled web of deals
OpenAI, which brought AI into the consumer mainstream with ChatGPT in 2022, is at the centre of the tangled web of deals drawing scrutiny. For example - last month, it entered into a $100bn deal with chipmaker Nvidia, which is itself the most valuable publicly traded company in the world. It expands an existing investment Nvidia already had in Mr Altman's company - with expectations that OpenAI will build data centres powered with Nvidia's advanced chips. Then on Monday, OpenAI announced plans to purchase billions of dollars worth of equipment for developing AI from Nvidia rival AMD, in a deal that could make it one of AMD's largest shareholders. Remember this is a private company, albeit one recently valued at a half-trillion dollars. Then there's tech giant Microsoft, which is heavily invested, and cloud computing behemoth Oracle has a $300bn deal with OpenAI, too. OpenAI's Stargate project in Abilene, Texas, funded with the help of Oracle and Japanese conglomerate SoftBank and announced at the White House during President Donald Trump's first week in office, grows ever larger every few months. And as for Nvidia, it has a stake in AI startup CoreWeave - which supplies OpenAI with some of its massive infrastructure needs.
Getty Images OpenAI boss Sam Altman
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