AI bubble: Are we in the trough of disillusionment?
As the term ‘AI bubble’ floats around the City, Susannah Streeter examines the outcomes of a potential dot.com-style boom and bust in today’s Notebook
Is the AI bubble about to burst?
I have a peculiar sense of déjà vu. It’s a bit like reaching the top of a rollercoaster ride, and teetering on the edge, remembering what it feels like to plunge down into the abyss. Twenty five years on from peak dot.com and it seems abundantly clear that another bubble has inflated around financial markets. The talk has moved rapidly from whether the hype over AI might be justified, to just when this wave of optimism will crash, and just how many companies will be dragged under the turbulent waters.
The Bank of England’s financial policy committee has warned the risk of a sharp market correction has increased, while Jamie Dimon, the boss of JP Morgan, believes the reckoning could be in the next six months to two years. Nvidia’s giant circular deal, locking OpenAI into its orbit by promising $100bn of funding if it continues to buy its processors, has echoes of vendor financing which fuelled dot.com valuations.
This dependence, reminiscent of an infinity mirror, presents big risks if the current demand for AI starts to crack. And it certainly does seem like we have passed the peak of expectations in research firm Gartner’s famous hype cycle and are indeed heading towards the ‘trough of disillusionment’, with many companies’ underwhelmed by current returns on their AI investment.
But, as the dot.com boom and bust tells us, there will be survivors of any potential storm on financial markets.
It’s worth bearing in mind Amazon’s trajectory. The stock may have fallen by 90 per cent as the dot.com era crashed and burned, but it has risen since in spectacular fashion with the online bookstore becoming not just an e-commerce behemoth but a giant global technology innovator and enabler. It’s not surprising Jeff Bezos has described the current climate as a ‘good bubble’.
He’s been there, done that, seen the weak disappear, and the strong emerge with more resilience and a bigger slice of the market. But it’s still not an open road ahead, even for a monster like Amazon. The rules of the AI game are evolving so quickly that some of the giants of the future may still be under the radar, with their innovations still waiting to be discovered.
Going nuclear
A sharp correction will be messy and painful, not least for the millions of Americans whose hopes and dreams are tied up in stock market valuations, given how high market participation is among ordinary retail investors in the US. There will be contagion not just for the American economy, but for other sectors around the world too. Right now, rivers of capital are pooling, waiting to flow into the nuclear industry. One reason for the surge in interest is the forecast demand from energy hungry data centres, with plans for Small Modular Reactors to spring up to power the AI revolution.
An AI-led market rout could act as a dam to funding, but it’s unlikely to be a long-term barrier. I’ve just returned from chairing the European Nuclear Energy Forum in Bratislava and it’s clear that demand for low carbon sources to meet net zero and energy security goals is already so high that nuclear is a vital part of the mix. Renewables may have overtaken coal as the world’s leading source of electricity for the first time, but grids need stable sources of continuous power. The European Commission is estimating that more than €240bn will have to be spent to reach decarbonization targets and energy needs, so nuclear and grid infrastructure upgrades look set to stay firmly in investors’ sights over the longer term.
Banking on female entrepreneurs
As the headlines are taken over by worries about geopolitical risk, market crashes and tariff turmoil, it’s a relief to be part of a good news story which has unfolded in the City. It was wonderful to celebrate the ripple effects of long-term investment into female entrepreneurship over the last decade at the European Bank of Reconstruction and Development. I chaired the Bank’s Women in Business event, interviewing a handful of the 250 thousand female entrepreneurs who have been supported. The Bank has passed the €1bn funding milestone, and the ripples, repercussions and reverberations will be felt for many years to come. There were great insights from the panels including from Bosnia Herzegovina’s central bank governor Jasmina Selimovic. The data is clear, from ultra-low non-performing loan levels to robust return on investment, funding female-led businesses is the best decision banks can take.
Cocktails and economics
Bloomberg knows how to cut through the noise, and its Women, Money and Power event this month was filled to the brim with brilliant female leaders from banking and finance around the world. Special applause has to be reserved for the mixologists shaking up the Power Suit cocktails, and the fireside chat between my fab former colleague Mishal Hussain and the erudite historian Victoria Bateman. It was a neat shot of crucial insight about how countries collapse if women are eclipsed and held back. Economica is a brilliant tour through our economic history, and it’s sure to be stuffed into plenty of stockings this Christmas.
Quote of the week
‘’It is a story of how women have made the world rich’’
Victoria Bateman on Economica, A Global History of Women, Wealth and Power
Have we had enough of experts?
Making sure expert voices are heard is an increasing challenge especially with misinformation flooding through social media. AI-generated content is making the problem worse, tripping up news organisations and businesses alike, and causing reputational damage. So, it was brilliant to collaborate with We Are Hydrogen, part of the PA Media Group, on a guide aimed at helping brands build trust. It looks at the rise of fake experts, the growing trust gap and why people are quicker than ever to spot when a brand’s words don’t match its actions.
Susannah Streeter is a financial commentator and broadcaster