The surge in billion-dollar investments in AI has sparked growing debate about whether the industry is headed for a bubble similar to the dot-com boom.
Investors are watching closely for signs that enthusiasm may wane or that heavy spending on infrastructure and chips may not yield the returns they hoped for. A recent survey by BofA Global Research found that 54% of fund managers think AI stocks are already in bubble territory, while 38% disagree.
Echoes of the dot-com era
Despite the optimism surrounding AI, skeptics remain unconvinced about its real-world impact. Some even call this a bluff or a bubble waiting to burst.
Speaking at Cisco’s recent virtual media roundtable, “AI Readiness Index 2025: Readiness Leads to Value,” Ben Dawson, senior vice president and president of Asia Pacific, Japan, and Greater China (APJC), compared the current wave of AI hype to the early days of the Internet. He said technology changes of this magnitude often follow a familiar pattern of early excitement, large investments, and an eventual market correction before long-term value takes hold.
Dawson noted that while some AI projects and business models may not last, the overall transformation is real and lasting. He added that like the internet revolution, AI will permanently reshape business and society, and organizations that ignore AI will do so at their own peril.
Role of government and global policy
Public policy will also shape how the AI cycle unfolds and how governments mitigate the risk of a potential AI bubble. as harvard business review He noted that in the United States, government involvement has helped define past technology eras, often through incentives and initial investments that encourage private innovation. The same pattern can now be seen with AI. The Trump and Biden administrations have positioned AI as an issue of economic power and national security, sending a clear message that speed is of the essence.
China is taking a state-led approach and directing capital to local AI companies to reduce dependence on US technology. In Europe, where efforts are focused on regulation, concerns about overregulation have led to the launch of new programs to boost adoption and competitiveness, such as the AI Continental Action Plan and the €1 billion AI Applications Fund.
On the other hand, venture capital and government funds have been making large investments even before demand for AI spreads. These early bets assume that adoption will eventually justify ramp-up. But if that demand slows, some investors could be left with stranded assets, like fiber-optic networks that fell into disuse after the dot-com bubble.
For business, the challenges are different. Instead of funding the next wave of infrastructure, they are faced with the question of how to use AI to enhance their operations. Companies that survived the dot-com bust, such as Amazon, succeeded by aligning technology with real business value, rather than market hype.
Market warns of potential AI bubble
The Bank of England recently warned that markets could see a sharp correction if confidence in AI is shaken, saying the potential impact on the UK financial system was “significant”. The warning reflects growing alarm among policymakers about how quickly AI-related valuations are rising.
This concern is shared by some investors and economists who believe the rapid pace of spending on AI could outweigh the short-term benefits. But some argue that building AI infrastructure now is an essential foundation for future innovation.
Building long-term AI infrastructure amid bubble fears
When asked if businesses are concerned about the cost and energy demands of AI infrastructure, Cisco’s APJC managing director of cloud and AI infrastructure, Simon Miceli, said they look at the issue from the opposite angle.
Rather than fearing overcapacity, he said what is happening now is a massive ramp-up to support the industrialization of AI. The question, he says, is not whether the demand for AI exists now, but whether the world is preparing fast enough for what’s coming.
Miceli acknowledges that the AI market is likely to undergo some correction, but believes the long-term need for AI computing power justifies the current level of investment. “There is a race to develop AI and build the capabilities behind it,” he said, adding that demand will eventually match supply as applications mature.
different shades of vigilance
Opinions are divided across the industry as to whether the AI momentum is hype or healthy growth.
According to ReutersSpeaking at the Milken Institute Asia Summit 2025, Brian Yeo, chief investment officer of Singapore’s GIC, said valuations for early-stage AI ventures appear to be inflated, with many startups boasting “huge multiples” despite modest revenues. He suggested that while some companies may be able to justify their valuations, others are unlikely to provide returns that meet investors’ expectations.
Amazon founder Jeff Bezos said that during times of excitement like this, investors often have a hard time distinguishing good ideas from bad, but he also noted that when markets calm down, innovation-driven bubbles often leave real progress behind.
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 winner remains unclear given the speed at which technology changes and how easily companies can switch providers.
Meanwhile, ABB CEO Morten Willod said: Reuters Although he doesn’t believe there will be an AI bubble, he said supply chain and construction restrictions could slow the rollout of new data centers. Pierre-Olivier Grinchat, the IMF’s chief economist, added that even if there is a recession, investments in AI are unlikely to trigger a systemic financial crisis because they are not debt-based.
OpenAI CEO Sam Altman acknowledged the market’s overexcitement, predicting that some investors would incur huge losses while others would make huge profits, an outcome that mirrors past tech bubbles.
Despite the growing buzz about the AI bubble, many investors remain enthusiastic about the space. UBS equity strategists said about 90% of investors who think the market is overheated still hold AI-related assets, suggesting most believe the industry has not yet peaked.
Cycles, not collapses
While concerns about an AI bubble are valid, most experts agree that the long-term impact of this technology is undeniable. As Cisco’s Ben Dawson has noted, major technology transitions go through cycles of hype, fixes, and consolidation, but what’s left behind reshapes the industry for decades.
For now, the question isn’t whether AI will survive, but rather how well companies and investors can weather the growing pains that come with every market bubble.
(Photo provided by Groutica)
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