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Is the AI market about to collapse?
Recent reports have led some to speculate that the AI bubble is about to go the way of the dot-com bubble around March 2000 and burst.
On a recent episode of The Scott Galloway Show Professor J. Markets Podcast, co-host Ed Elson discussed concerns around the AI-induced collapse with Josh Brown, co-founder and CEO of Ritholtz Wealth Management.
They discuss some of the key developments that created this view.
In August, OpenAI released ChatGPT-5 amid unenthusiastic reviews and users who complained that it was less intuitive than GPT-4, leading the company to bring back the old model for paying customers, according to CNBC. (1)
Sam Altman, CEO of OpenAI, also caused a stir when he said that AI exists in a bubble.
“When bubbles happen, smart people get very excited about the kernel of truth,” Altman told reporters in August. (2) “Are we at a point where investors as a whole are getting overly excited about AI? My view is yes. Is AI the most important thing to happen in a very long time? My view is also yes.”
Then, The Information reported, Meta was undergoing a fourth restructuring of its AI efforts in just six months, with a downsizing on the horizon. (3) Finally, MIT released a report that found that 95% of generative AI pilots in companies fail, as reported by Fortune. (4)
All this pessimism has led to a notable decline in some AI stocks like C3.ai (NYSE:AI), which fell 28.2% in August.
“These reports sparked fear in the market and sparked a massive sell-off in US technology companies, sending all mega-cap stocks down for several days,” Elson said on the podcast. “The Nasdaq fell more than 3% and the S&P lost $500 trillion in value.”
However, money continues to flow into the industry. On October 6, OpenAI signed a multibillion-dollar deal with chipmaker AMD, sending AMD shares up 38%. (5)
Elson asked Brown what he thought about the bubble concerns.
“These things happen in threes,” Brown was quick to note, telling Elson about a similar experience he had before the dot-com bubble burst in 2000, when some alarm bells went off within a few weeks.
One red flag Brown pointed out was similar to Sam Altman’s bubble statement when Microsoft CEO Bill Gates said in 2000 that “he wouldn’t buy his own stocks… He was talking about how expensive valuations are for technology stocks, and he included his own company.”
In retrospect, he sees this as a warning sign that many ignored.
“Of course no one wanted to hear that,” Brown said. “You have these critical events and you can’t really point to one and say that was the moment — but in hindsight, you look back and you can say, ‘Oh, we should have known.’”
But that doesn’t mean he’s afraid the same thing could happen to AI stocks.
“The things you’ve put forward to me don’t sound the death knell for AI,” Brown said. “My personal belief is that we can at least get to the end of the decade with all the momentum and money being spent – but I think the share price action of the last couple of days in the market is telling investors how overdone this is and how easy it is to spook the herd now. It doesn’t take much.”
Brown also explained that he agrees with the general sentiment that AI stocks have reached a saturation point.
“If you believe that artificial intelligence will transform society, and if you are very optimistic about this topic, you should consider the fact that everyone already agrees with you,” he said. “By declaring your optimism about AI, you are not saying anything that no one already knows.”
Elson said what he described looked like a bubble, and Brown agreed, but noted that we don’t know where we are in the bubble.
“It could be 1997, it doesn’t have to be March 2000 yet,” he said. “Of course it’s a bubble – there’s a capital expenditure bubble every generation.” “Not every capital expenditure bubble has to lead to a generational crash. You could have a bear market follow – and what if it starts three years from now? Think of all the money you’re missing.”
As a wealth manager, he doesn’t hide the reality of the bubble from his clients.
“I think we’re in a bit of a shaky state right now, and I think that’s OK, stocks are supposed to be volatile.”
While an AI-fueled market crash may or may not be on the horizon, it’s a good idea to consider alternative investment options that can help you hedge against it when the outlook is so mixed.
One alternative investment that has performed well this year is gold, which has seen its value rise more than 44% (6), reaching an all-time high of more than $4,000 per ounce in early October. (7) This rise has exceeded previous reports from JPMorgan, which estimated that it would take until the second quarter of 2026 to reach this benchmark. (8)
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Finally, a skilled advisor can help ensure your investment portfolio is set up with an optimally diversified asset mix, hedging against whatever AI has in store for the market. According to a report by Vanguard, people who work with financial advisors see a 3% increase in net returns. (8)
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