Harding completely misses the point: AI is not a stable infrastructure because it can easily be circumvented by other techniques that can render it totally irrelevant. An insurance investment (Zuckerberg) succeeds if there is something there to insure! No one is saying that Meta will collapse if it loses hundreds of billions of dollars. But, first, financial markets can collapse as a result and, second, even Meta, like Apple and co. could quickly go the way of the dinosaurs.

The AI boom is not a bubble

Robin Harding robin.harding@ft.com

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Bubble, in the context of financial markets, is a word with a specific meaning. It signifies that the price of certain assets exceeds their intrinsic value — some rational estimate of future returns — and by definition, therefore, it implies some mania, euphoria or irrationality.

Despite widespread talk of bubbles, such irrationality is still hard to diagnose in the current wave of market enthusiasm for artificial intelligence. That does not mean all the capital going into the sector must earn good returns — far from it. But for now at least, AI is best thought of as a boom — one that may turn into a bust — rather than as a bubble.

Those who fear a bubble have plenty of exuberance to point towards. There is the spectacular performance of AI stocks, with Nvidia briefly becoming the first company worth more than $5tn; the huge share of US output going into tech investment; the AI start-ups instantly valued in the billions of dollars; the increasing use of debt to fund data centres; and the dubious, circular deals such as OpenAI’s partnerships with Nvidia and AMD, whereby tech suppliers invest in AI companies that immediately use the money to buy the supplier’s product.

Exuberance, however, need not imply irrationality. It is important to distinguish two situations that resemble a bubble, but are not.

One is over-optimism. Whenever a radical new technology such as AI comes along, there is considerable uncertainty about its value. Does it even work? What are the applications? Will it keep improving exponentially?

Investors have to make judgments with extremely limited information, and as the utility of the technology becomes more apparent, it may turn out that their initial assessments were wrong. That will manifest as an investment boom that turns to bust — not a bubble that deflates. An overestimate of intrinsic value is not a departure from it.

Three years after the launch of ChatGPT heralded the arrival of generative AI, its ultimate utility is still unclear. Many companies have found that chatbots do not take them very far, but during 2025 AI has found some serious applications, such as in computer programming, and the technology continues to evolve fast. There are still grounds for optimism about its value.

A second, closely related situation is a different kind of error, where investors correctly assess the value of a new technology but mistake the winners. One of the most remarkable things about the 1990s dotcom boom, in retrospect, is how rational it was.

The investors of the time were correct about the huge value of the internet. They quite naturally placed early bets, buying up the leading companies of the day — Yahoo and Lycos, Amazon and AOL — but Google was then based in a garage and Mark Zuckerberg was still at school. It may be that the winners of the AI era have not yet been founded, but again, error does not imply irrationality.

The biggest reason to call this a boom rather than a bubble, however, is the driving force behind it: a small group of established technology giants with coldly rational reasons to spend hundreds of billions on AI.

One of the sacred texts of Silicon Valley is Only the Paranoid Survive, a 1996 book by the late Intel chief executive Andy Grove, and when generative AI arrived, the tech giants — sitting on top of some of the most valuable quasimonopolies in human history — had plenty to be paranoid about.

The ChatGPT interface was an immediate and obvious threat to internet search (Alphabet: $3.8tn market cap). Algorithms, filtering and content creation with generative AI affect social media (Meta: $1.7tn). With a little imagination around AI agents and voice interfaces — and the executives who run these companies have highly developed imaginations when it comes to competition — the technology could also disrupt the smartphone (Apple: $4.05tn and ecommerce (Amazon: $2.5tn) even before you get to Microsoft and the rest of the computing industry.

Protecting these enormously valuable businesses is easily worth spending a fortune just as an insurance policy, even if AI does not, in the end, create much new value. “If we end up misspending a couple of hundred billion dollars, I think that is going to be very unfortunate, obviously, but . . . I actually think the risk is higher on the other side,” Zuckerberg said in September. He may be wrong. He does not sound delusional.

OpenAI, the biggest new company to emerge in this area, demonstrates the point rather than contradicts it. The most plausible reason for it to be worth hundreds of billions is the potential to monetise its more than 800mn weekly users at the expense of the existing tech giants. Meanwhile, if someone is spending hundreds of billions a year on AI, that supports a lot of investment in data centres, and buys a lot of Nvidia semiconductors, regardless of how well the technology ultimately works out.

With Meta and Alphabet trading on 25-30 times earnings, their valuations look optimistic, but not euphoric. To repeat, this is not a claim that AI will triumph, that market expectations are correct or that boom will not turn to bust. Given the uncertainty, it would be more surprising if the market’s current beliefs were right than if they were wrong, but investors need to wrestle with the actual potential of this technology rather than dismiss it as a bubble.

The AI boom is not a bubble

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