Is the AI bubble deflating?

Sometimes booms go bust. That may be happening with artificial intelligence. "There's growing evidence that the hype machine is slowing down," said The Washington Post. Major tech companies like OpenAI, Microsoft and Google have unveiled gaudy new products with fanfare, but AI so far is "yet to upend the way people work and communicate with each other." And profits are turning out to be elusive as well. Why? That's partly because AI tech "remains hugely expensive to build and run."

Jeremy Grantham, an investor known for predicting financial crises in 2000 and 2008, "believes that AI is a bubble that could start letting out some air," CNN said. Tech stocks reached "eye-popping heights" in 2023 and the trend is continuing this year, but Grantham believes "the market is overdue for a sharp pullback." Other elite investors are also sounding the alarm, Business Insider said, pointing to the "dot-com crash" that devastated the tech sector in the early internet era. "This feels a lot like 1999," said Jeffrey Gundlach, CEO of DoubleLine Capital.

AI systems are "so advanced that they now very nearly match or exceed human performance" on a variety of tasks, said Nature Magazine. But there is also a downside for AI companies: "As performance is skyrocketing, so are costs." 

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What did the commentators say?

Tech companies "are gambling colossal amounts of money on AI," John Naughton said at The Guardian. But no profits are being made in the sector, except for firms "that build the hardware." That makes it likely that "panic" is about to set in among investors. But it's unclear what will trigger that process — governments might step in with AI regulations, investors may grow leery, or concerns about the environmental impact may grow too large. "At some stage a bubble gets punctured and a rapid downward curve begins."

"Today's market isn't remotely like the dot-com bubble market was," Allan Sloan said at Yahoo Finance. A recent survey found that the experts are nearly split on whether AI stocks are in a bubble: 40% said yes, while 45% said no. If AI stocks are "high priced" today, tech stocks were "insanely priced" a generation ago. That means the fall won't be as steep. But there might still be a fall. "There may be some difficult times ahead for investors."

That fall may not come soon, though. "The generative AI stock bubble isn't popping anytime soon," Peter Cohan said at Forbes. The dot-com bubble burst after about five years while we're less than two years into the AI era. "Underlying demand for generative AI is in its early stages" and will continue to grow if companies that use AI tools see "tangible" benefits. "It could take years before the current bubble ultimately implodes." 

What next?

There are mixed signals. Stability AI — which runs the Stability Diffusion text-to-image creator — laid off 10% of its workforce, said The Verge. The move came after a "rocky few months" for the UK-based company that saw some high-profile researchers and its CEO step away. The layoffs "represent the first major AI foundation model to cut its workforce since the rise of generative AI."

On the other hand, Meta this week launched an AI-powered assistant across all its apps, including Facebook, Instagram, WhatsApp and Messenger. (The company then saw its stock price drop after it announced higher-than-expected AI spending.) The software "will become practically omnipresent," said The New York Times, available in news feeds and search bars. But making AI unavoidable is one thing. Now? "The challenge will be to convince people that the new assistants can be useful." 

If there's a growing skepticism about AI — and its profitability — just hold on. "There is a tendency to underestimate how much new technology will affect our daily lives," Bradley Guichard said at Seeking Alpha. There will be "failures and false starts" and some AI-related stocks will deflate. But AI will probably continue to grow. "The technology is coming."