Will the AI Bubble Burst? 5 Things To Know for Your Stock Investments
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Nicole Spector
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Jenna Klaverweiden
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Though it’s been dominating headlines the past couple of years, artificial intelligence (AI) is not a particularly new concept. It dates back to 1950, when Alan Turing, an English mathematician and computer scientist hailed as the father of AI, published the paper “Computing Machinery and Intelligence.” In the paper, Turing posed the question, “Can machines think?”
Well, many decades later, we’re getting closer to understanding that the answer is yes. And the more we learn about AI and experience its evolutionary leaps, the more passionately invested we’re becoming in it. And many of us are not just invested in it intellectually; plenty of folks are investing in companies that are behind AI products and services.
The question now is whether we’ve gotten a little too excited about AI. Could the AI bubble burst? What should investors know? Here’s what experts think.
Also see 10 opportunities and risks while using AI for investing.
There’s Growing Awareness That AI’s Promises Are Not Yet Being Fulfilled
A major concern among those investing in AI companies is that AI isn’t delivering the financial rewards they may have anticipated. At least not yet.
“Essentially what is going on with this ‘AI bubble’ is that people, and investors, are beginning to realize that all of the fantastic promises of AI are falling short,” said Edward Tian, CEO at GPTZero. “When ChatGPT burst onto the scene around two years ago, that was when the concept of AI really skyrocketed and the AI ‘arms race” really kicked off.”
ChaptGPT’s rapid evolution spurred competition between tech companies, which resulted in a serious problem.
“This major competition between tech companies and all of the ‘potential’ involving AI led to tons of people investing in the technology and incorporating it into their business structures,” Tian said. “Only, now we are past that initial hype and many people have felt let down by the way in which AI hasn’t quite met expectations — both financially and from an inventive perspective.”
We’ve Yet To See Profit From AI Startups
Perhaps the biggest concern for AI investors is that we’ve yet to see many AI startups make a profit. Will they ever be rewarding for investors? Thomas Anglero, founder and CEO of Too Easy AS, thinks not.
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“None have been profitable and will not be ever,” Anglero told GOBankingRates.
In Anglero’s opinion, no AI startup will ever generate a return on investment (ROI) for a very specific reason: the rapid advancements of Meta, the parent company of Facebook.
“Because of what Meta has done by releasing a free open source LLM that is better than the rest,” Anglero said. “They have destroyed any future possibility of obtaining direct revenue from an LLM by subsidizing their LLM development with Meta advertising income, just like Google did when it started and destroyed several companies in the process.”
Investors Could Get Nervous
Those who have invested in AI and are sensing that they may have been oversold on hype that failed to deliver could get nervous and yank out their investments in AI. This is when the bubble could burst.
“The excitement and promise of a ‘new tomorrow’ technology is not coming in today, and if investors continue to get antsy, the money will stop moving and the bubble will burst,” said Becky Leighton, content head at Coin Insider.
If There Is a Bubble, When Will It Burst?
If the AI bubble were to burst, when can we expect it? Anglero thinks it will happen next spring.
“It is too soon, and investors still think that AI will save them,” Anglero said. “It will — but not in the financial way they are hoping for.”
And if it were to burst, it won’t come as much of a shock to some.
“If it does burst, it won’t be surprising; it happens with the rapid growth around a new exciting asset,” Leighton said. “When the euphoria fades and the money is pulled rather than reinvested, the crash will inevitably come.”
What Happens If/When the Bubble Bursts?
Should the AI bubble burst, we could see a rapid and severe decline around “overvalued AI instruments,” Leighton said.
Consequently, the tech sector in general would likely be hit as investors become increasingly uneasy about risk exposure.
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