Opinion | Markets are paying little heed to flashing lights of AI bubble’s danger

Great technologies might be able to survive the bursting of bubbles, but the portfolios of investors are unlikely to be as fortunate

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People visit the China International Consumer Electronics Exposition in Qingdao, Shandong province, on September 19. Themed “Intelligence Connects All, AI Empowers the Future”, this year’s expo showcased cutting-edge technologies and innovative products. Photo: Xinhua

Published: 8:30pm, 8 Oct 2025

Enthusiasm always runs ahead of reality during financial bubbles. Truths are stretched as fantasy takes flight. Envy, overconfidence, greed and the rush of gambling kindle a herd mentality.

This cycle is well along for artificial intelligence (AI). Caution lights are flashing as equity valuations run far ahead of cash flows. At this point, an impresario usually insists that “this time is different”. These days it’s Amazon founder Jeff Bezos. It’s a “good” kind of bubble, he argues. “When the dust settles and you see who are the winners, society benefits from those inventions.” Goldman Sachs CEO David Solomon sees danger soon. Within the next two years, he fears “a drawdown” as there is “a lot of capital that’s deployed that will turn out to not deliver returns”.

Capital expenditures are now driven by “AI at any cost” strategies for companies around the world. Investment of nearly US$3 trillion is forecast for AI infrastructure globally between 2025 and 2028, according to Morgan Stanley. The market is pricing technologies and service providers as if present scarcity was a law of nature for the biggest movement of capital in modern history.

We have seen many speculative bubbles over the years. In the 18th century, the South Sea Company crashed when promises of wealth from its slave-trading monopoly didn’t materialise. During the “Roaring Twenties”, the market collapsed when credit tightened to the demise of highly leveraged portfolios.

During the dotcom bubble, online companies lacked viable business models as higher interest rates made safer investments more attractive, leading to an equities rout in 2000-2002. A few years after, the global financial crisis hit. Financial derivatives enabled borrowers with dubious credit to speculate on houses. These poorly understood instruments became worthless when owners walked away from their “underwater” real estate. The devastating consequences reverberated worldwide.

Displacement starts the cycle with an event such as the internet disrupting economic fundamentals, as economists Charles Kindleberger and Hyman Minsky point out. Rapid growth and euphoria follow. Credit is easy. Investors suspend disbelief. Then confidence snaps. Earnings disappoint. Capital to fuel growth dries up. Companies practice accounting shenanigans. Stock prices plummet. Revulsion sets in as investors rush to far less risky securities.

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.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Great technologies might be able to survive the bursting of bubbles, but the portfolios of investors are unlikely to be as fortunate

Great technologies might be able to survive the bursting of bubbles, but the portfolios of investors are unlikely to be as fortunate