AI Bubble: 5 Things That Could Happen If It Bursts

What Is the AI Bubble?

Over the past few years, investors have pumped extraordinary amounts of money into AI companies because they've been betting that the technology will eventually generate equally extraordinary returns. That's at the heart of what people mean when they talk about an "AI bubble". The argument is that investment, spending and some company valuations have whizzed way ahead of what the technology can actually earn right now.

There are now growing questions about whether those returns will arrive quickly enough (or ever) to justify all of that spending. For example, The Financial Times recently reported that OpenAI, the maker of ChatGPT, expects almost $280 billion in negative free cash flow through 2030.

This means that if investor confidence starts dropping, investment could dry up. Then AI companies could fail and the industry could be forced to spend much, much less.

Why Warnings Are Growing

Is it just you, or are warnings that the AI bubble could burst soon getting even harder to ignore? Over the past few years, investors have pumped extraordinary amounts of money into AI companies because they've been betting that the technology will eventually generate equally extraordinary returns. However, there are now growing questions about whether those returns will arrive quickly enough (or ever) to justify all of that spending.

For example, The Financial Times recently reported that OpenAI, the maker of ChatGPT, expects almost $280 billion in negative free cash flow through 2030. That's at the heart of what people mean when they talk about an "AI bubble". The argument is that investment, spending and some company valuations have whizzed way ahead of what the technology can actually earn right now.

OpenAI's $280 Billion Problem

When people talk about an "AI bubble," the numbers behind OpenAI make the argument unusually concrete. The Financial Times recently reported that OpenAI, the maker of ChatGPT, expects almost $280 billion in negative free cash flow through 2030.

That figure sits at the heart of the bubble debate. Investors have pumped extraordinary amounts of money into AI companies, betting the technology will eventually generate equally extraordinary returns. The problem is timing: questions are growing about whether those returns will arrive quickly enough — or ever — to justify the spending.

The argument, in short, is that investment, spending and some company valuations have whizzed way ahead of what the technology can actually earn right now. If investor confidence starts dropping, investment could dry up. AI companies could then fail, and the industry could be forced to spend much, much less.

5 Things We'd Expect If the Bubble Bursts

If investor confidence starts dropping, the article suggests the fallout wouldn't necessarily mean the end of ChatGPT. Instead, here are the five things we'd expect to happen.

1. Investment could dry up. The money that has been pumped into AI companies could stop flowing as investors reassess whether extraordinary returns will ever arrive.
2. AI companies could fail. With funding harder to secure, some businesses in the sector may not survive.
3. The industry could be forced to spend much, much less. A pullback in investment would likely force a sharp reduction in spending across the board.
4. Valuations could come under pressure. The argument at the heart of the bubble talk is that spending and some company valuations have whizzed way ahead of what the technology can actually earn right now.
5. ChatGPT itself might survive. As the headline notes, the bubble could burst without killing ChatGPT — though you might not like what happens next.

The common thread is a gap between what's being spent and what's being earned, which is exactly what makes the bubble warnings so hard to ignore.