In mid-August, this year, Sam Altman, the chief executive Officer of OpenAI, made a profound statement about the Artificial Intelligence (AI) industry which got many talking.
I spoke too! Altman, in his statement, compared the hype about AI to the bubble of more than two-and-a-half decades ago, and warned that investors might lose a significant amount of money in future due to the unrealistic valuation of some AI companies.
But Altman is not alone in thinking that way, as many others, familiar with company valuations, have also expressed similar sentiments about the huge investments into an industry yet to generate the expected returns.
As an AI enthusiast, I have also taken a keen interest in the industry’s financial performance, and today I would like to attempt yet another answer to the question of whether the AI bubble will follow the dotcom disappointment of the past two and a half decades.
So, how much do you know about the dot.com era? Well, I have a strong idea because I lived through it. It was in the mid-1990s, and I was in graduate school when it all unfolded.
We witnessed how businesses, with no physical high street presence, were rapidly taking over the space of long-established companies.
We saw, for example, how the digital cameras were changing the photography industry, with global brands like Kodak and Polaroid struggling to maintain their market base.
These two global brands of yesteryear were leaders in their time and space, and enjoyed good patronage, making good profits in the end as market leaders.
But the photography industry has experienced a whole new set of rules of play today, thanks to the advancement in technology.
Today, we understand what is happening and can explain why the frenzy got some companies blindsided and made some rich. But at the start of its adoption, we did not fully understand how the industry was going to unfold.
One thing was clear, though: it was a novelty that had a lot of promise, and something transformational too. Early adopters of technology in various industries were able to testify to its power in simplifying complex tasks and improving their work-life balance.
This was a pull factor that got many bargain-hunting investors interested in investing in technology-based companies.
These companies enjoyed high valuations with attractive returns on investments. But, in the end, it did not turn out exactly as was anticipated, and some of the companies marked as promising could not deliver on their promises.
As investors’ funds dried or got wiser with their valuations, they folded up.
So, in simple terms, this is how the dot.com bubble unfolded over time. Of course, technology stocks are still enjoying high valuations and hold promise for the future.
Today, all you need is a mobile phone or any device that connects well to the internet and at a click, you will find several service providers- carpenters, lawyers, accountants, caterers- to choose from, depending on what you want.
Going about your daily activities has become a lot easier, thanks to the internet revolution and the general improvement in information communication technology, innovation and infrastructure.
No wonder jargons like “information superhighway”, “digital capital”, “digital economy”, and the rest dominate business book chapters and articles written on businesses.
You must speak “technology” to be able to hold any meaningful business discussions, as leading industries such as music, media (photography in particular), finance and insurance have experienced revolutionary changes, thanks to technology.
And, fascinating entrepreneurs like Elon Musk and Mark Zuckerberg are using technology like a play-toy that rewards when you understand how it works.
AI, no doubt, gave birth to the technology revolution. What about it? Well, the AI industry, according to available records, is attracting substantial investment, with US$30-40 billion invested in generative
AI. But available records indicate that about 95 per cent of organisations are yet to generate returns. This is why some think the sins of the father (technology) are likely to impact the son (AI).
In fact, in the August 30, 2025, edition of this column, I referenced this trend. Writing under the headline, Artificial Intelligence or Manipulation? I used the fall in share price of some AI-linked technology companies to explain why the AI bubble might soon burst.
This is an example of what I wrote in that addition: “Writing for the Guardian.com in the UK about the issue [fall in share price], Phillip Inman stressed that ‘there are growing fears of an imminent stock market crash – one that will transform from a dip to a dive when euphoric headlines about the wonders of artificial intelligence begin to wane’”.
Recounting the market conditions that informed his suspicion, Inman explained that “shares in US tech stocks have fallen in recent weeks and the prospect is that a flood of negative numbers will become the norm before the month is out”.
“It could be 2000 all over again [when the dot.com bubble burst occurred], and just like the bursting of the dotcom bubble, it may be ugly, with investors junking businesses that once looked good on paper but now resemble a huge liability”, Inman emphasised.
Before my August 30 write-up, in the Saturday, February 1, 2025, edition, I posed this question: Is the market overvaluing the AI market?
This was after DeepSeek’s majestic market entry into the AI market had created a deep sigh, not of relief but of fear and panic.
This is the story: “In the week beginning January 27, 2025, global financial markets came under intense pressure, with reports that several international business icons with cash had lost part of their fortune.
The market shake-up was from China, an AI ‘virus’ that had seemingly cracked the secret code of the trade, revealing information that could all but expose some underlying issues within the AI ecosystem.
This is how Bloomberg News Service reported it: “The world’s 500 richest people, led by Nvidia Corp. co-founder Jensen Huang, lost a combined US$108 billion on Monday [January 27, 2025] as a tech-led selloff tied to Chinese artificial intelligence developer DeepSeek sent major indices plunging”.
The report added that “Billionaires whose fortunes are linked to AI were the biggest losers: Huang saw his fortune fall by US$20.1 billion, a 20 per cent drop, while Oracle Corp. co-founder Larry Ellison’s US$22.6 billion loss was larger in absolute terms, but represented just 12 per cent of his fortune, according to the Bloomberg Billionaires Index”.
Overinvestment in AI companies and inflated valuations not backed by significant real returns could lead to a share price drop and possible restructuring in the industry. As things stand, the evidence is clear: there are concerns among experts that the AI bubble is not sustainable.
botabil@gmail.com
