Global regulators recently issued warnings regarding the soaring valuations in the artificial intelligence (AI) sector, likening them to the heights seen during the dotcom bubble. They cautioned that the concentration of investment in a few select companies poses a risk to market stability, and a shift in investor confidence could impact share prices and the broader economy. Additionally, China’s proposed export controls on rare earth elements present new challenges, particularly concerning advanced chip supply chains.
Historical context on financial bubbles can be found in Charles Kindleberger’s work, “Manias, Panics and Crashes,” which describes how economic outlooks change, prompting excess in pursuit of profit. Kindleberger notes that a realization of mistakes often leads to abrupt market corrections.
Hyman Minsky, a key economist referenced by Kindleberger, explored the instability associated with financial innovations. He suggested that calm periods in the market lead to increased risk-taking, driven by a belief in continual growth. Minsky advocated for systemic changes, highlighting the need for institutional frameworks to manage financial speculation and ensure sustainable investment practices.
Current tech leaders, including Sam Altman of OpenAI and Jeff Bezos of Amazon, have expressed apprehensions regarding inflated tech valuations, with Altman describing them as “insane.” Observations indicate that many startups are securing significant funding despite lacking tangible products. Critics note that the market capitalization of U.S. stocks has reached unprecedented ratios compared to the GDP, reminiscent of pre-dotcom crash trends.
Ultimately, while AI has transformative potential, the economic implications of rampant speculation may pose serious threats. A Minsky-inspired approach could involve regulatory measures to limit risky borrowing and direct investment into socially beneficial technologies. Altman warned about the irrationality behind current funding trends, suggesting that without intervention, significant losses could occur in the AI market.
Source: https://www.theguardian.com/commentisfree/2025/oct/10/the-guardian-view-on-an-ai-bubble-capitalism-still-hasnt-evolved-to-protect-itself