The surge of multi-billion-dollar investments in AI has sparked growing debate over whether the industry is heading for a bubble similar to the dot-com boom.
Investors are watching closely for signs that enthusiasm might be fading or that the heavy spending on infrastructure and chips is failing to deliver expected returns. A recent survey by BofA Global Research found that 54% of fund managers believe AI stocks are already in bubble territory, while 38% disagree.
Echoes of the dot-com era
Despite the optimism surrounding AI, sceptics remain unconvinced of its real-world impact. Some even call it a bluff or a bubble waiting to burst.
Speaking during Cisco’s recent Virtual Media Roundtable — AI Readiness Index 2025: Readiness Leads to Value, Ben Dawson, Senior Vice President and President for Asia Pacific, Japan, and Greater China (APJC), compared the current wave of AI hype to the early days of the internet. He said technological shifts of this scale often follow a familiar pattern — early excitement, heavy investment, and eventual market correction before long-term value takes hold.
Dawson noted that while some AI projects or business models may not last, the overall transformation is real and lasting. He added that, much like the internet revolution, AI will permanently reshape business and society, and organisations that ignore it do so at their own risk.
The role of governments and global policy
Public policy is also shaping how the AI cycle unfolds — and how governments might cushion the risks of a potential AI bubble. As Harvard Business Review pointed out, in the US, government involvement has helped define past technology eras — often through incentives and early investments that encourage private innovation. The same pattern is now visible in AI. Both the Trump and Biden administrations have positioned AI as a matter of economic strength and national security, sending a clear message that speed matters.
China has taken a state-led approach, directing capital toward local AI firms to reduce reliance on US technology. In Europe, efforts have focused more on regulation, though fears of overregulation have led to new programs — such as the AI Continent Action Plan and a €1 billion Apply AI fund — to boost adoption and competitiveness.
Meanwhile, venture capital and sovereign wealth funds are investing heavily, even before widespread AI demand exists. These early bets assume that adoption will eventually justify the buildout. But if that demand slows, some investors could be left with stranded assets, much like the unused fibre networks that followed the dot-com bubble.
For businesses, the challenge is different. Instead of financing the next infrastructure wave, they face the question of how to use AI to strengthen their operations. The companies that survived the dot-com downturn — such as Amazon — succeeded by aligning technology with real business value rather than market hype.
Market warnings over a possible AI bubble
The Bank of England recently warned that markets could suffer a sharp correction if confidence in AI falters, calling the potential impact on the UK’s financial system “material.” The warning reflects growing caution among policymakers about how quickly AI-related valuations have climbed.
This concern is shared by some investors and economists who believe the rapid pace of AI spending may outstrip short-term returns. Others, however, argue that building AI infrastructure now is essential groundwork for future innovation.
Building long-term AI infrastructure amid bubble fears
When asked whether companies are worried about AI infrastructure costs and energy demand, Simon Miceli, Managing Director of Cloud and AI Infrastructure for APJC at Cisco, said he views the issue from the opposite angle.
Rather than fearing overcapacity, he said what’s happening now is a large-scale buildout to support the industrialisation of AI. The question, he said, isn’t whether AI demand exists today, but whether the world is preparing fast enough for what’s coming.
Miceli acknowledged that some correction in the AI market is likely, but he believes the long-term need for AI computing power justifies current investment levels. “There’s a race to develop AI and build the capability behind it,” he said, adding that demand will eventually meet supply as applications mature.
Different shades of caution
Across the industry, opinions vary on whether AI’s momentum represents hype or healthy growth.
According to Reuters, at the Milken Institute Asia Summit 2025, Singapore’s GIC Chief Investment Officer Bryan Yeo said valuations in early-stage AI ventures appear inflated, with many startups commanding “huge multiples” despite modest revenues. He suggested that while some firms may justify their valuations, others are unlikely to deliver returns that match investor expectations.
Jeff Bezos, Amazon’s founder, said that during periods of excitement like this, investors often struggle to separate good ideas from bad ones — though he also noted that innovation-driven bubbles often leave behind real progress once the market settles.
At Goldman Sachs, economist Joseph Briggs argued that the current surge in AI infrastructure spending remains economically sustainable. He said the long-term case for AI investment is strong, but the ultimate winners are still uncertain given how quickly technology changes and how easily companies can switch providers.
Meanwhile, ABB CEO Morten Wierod told Reuters that while he doesn’t see an AI bubble, supply chain and construction limits could slow the rollout of new data centres. IMF Chief Economist Pierre-Olivier Gourinchas added that even if there’s a downturn, it’s unlikely to cause a systemic financial crisis since AI investments aren’t debt-driven.
OpenAI CEO Sam Altman also acknowledged market overexcitement, predicting that some investors will lose large sums while others will profit heavily — an outcome that mirrors past technology bubbles.
Despite growing talk of an AI bubble, many investors remain committed to the sector. UBS equity strategists said that about 90% of investors who think the market is overheated are still holding AI-related assets, suggesting most believe the industry has not yet peaked.
A cycle, not a collapse
While concerns about an AI bubble are valid, most experts agree that the technology’s long-term impact is undeniable. As Cisco’s Ben Dawson put it, every major technological transition goes through a cycle of hype, correction, and consolidation — but what remains afterward reshapes industries for decades.
For now, the question isn’t whether AI will endure, but how well businesses and investors can navigate the growing pains that come with every market bubble.
(Photo by Growtika)
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