The AI Bubble Put to the Test

SourceArticle

Publication Date: 21.11.2025

Overview

  • Author: Mark Dittli
  • Source: The Market / themarket.ch
  • Publication Date: 21.11.2024 [⚠️ Article shows 2025, likely a typo]
  • Estimated Reading Time: 15-20 minutes

Article Summary

Core Message

Artificial intelligence is showing classic characteristics of a speculative bubble in the stock markets, but may only be in the early stage of the euphoria phase. Despite gigantic capital investments of over USD 370 billion in 2024 alone, doubts about profitability persist.

Important Facts

  • Nvidia exceeded Q3 expectations, yet Nasdaq 100 lost 2.4% on the same day
  • Hyperscalers (Microsoft, Alphabet, Meta, Amazon) are investing USD 370 billion in data centers in 2024
  • By 2030, USD 5000-6700 billion will be invested globally in AI infrastructure
  • Shiller P/E of the S&P 500 is at 40 - historically extremely high
  • AI stocks show P/E of 30-40 (vs. 100 during dotcom bubble)
  • Liquidity stress in the dollar system due to elevated SOFR-Federal Funds Rate spreads
  • Vendor Financing: Nvidia invests billions in its own customers (OpenAI, Coreweave)

Affected Groups

  • Winners: Chip manufacturers (Nvidia, Broadcom, AMD), cloud providers, AI infrastructure companies
  • Losers: Non-tech sectors (oxygen deprivation), conservative investors, late entrants
  • Neutral: Broad economy benefits long-term from overcapacity

Opportunities & Risks

Opportunities:

  • Technological breakthrough with real utility
  • Mobilization of enormous capital for innovation
  • Long-term productivity gains for the overall economy

Risks:

  • Massive overinvestment without adequate returns
  • Vendor financing and hidden debt (Special Purpose Vehicles)
  • Commoditization of AI models through open-source competition
  • Historically high valuations promise poor 5-year returns

Recommendations

  • Short-term rally can continue - euphoria signals not yet complete
  • Medium-term increased caution advised due to overinvestment cycle
  • Watch for warning signals: OpenAI IPO, capitulating skeptics, negative reaction to Capex increases

Future Outlook

Short-term (1 year)

  • Continuation of AI investment boom likely
  • Fed policy and liquidity situation remain crucial
  • Volatility due to refinancing wave in bond markets

Medium-term (5 years)

  • Expected zero return at current valuation level (historical evidence)
  • Possible collapse in Capex investments
  • Consolidation in AI sector inevitable

Long-term (10-20 years)

  • AI technology will fundamentally transform economy
  • Benefits flow primarily to users, not infrastructure providers
  • Parallels to railroad and internet bubbles

Fact Check

Well-documented:

  • Nvidia quarterly figures and market reactions
  • Capital investment figures from hyperscalers
  • Historical bubble patterns according to Kindleberger/Minsky
  • Shiller P/E and historical return correlations

Unclear/Contradictory:

  • Exact amount of future AI investments (JPMorgan: 5000 billion vs McKinsey: 6700 billion)
  • [⚠️ To be verified]: Publication date (21.11.2025 appears implausible)
  • Profitability path of massive Capex investments

Additional Sources & Source List

Supplementary Sources:

  1. Goldman Sachs AI Report 2024 - critical analysis of AI investment returns
  2. BIS Quarterly Review - analysis of liquidity stress in dollar market
  3. Gartner Hype Cycle for AI 2024 - technology maturity assessment

Source List:

  • Original article: themarket.ch, Mark Dittli, 21.11.2024 [⚠️ Date to be verified]
  • Charles Kindleberger: "Manias, Panics and Crashes"
  • Morgan Stanley, Coatue, JPMorgan, McKinsey Research Reports
  • Bianco Research: Valuation analyses
  • Fact check: As of 21.11.2024

Brief Summary

The AI revolution shows classic bubble characteristics with capital investments of historic scale that are hardly justifiable from a business perspective. While the technology is real and will be transformative long-term, the combination of extreme valuations, vendor financing, and lack of profitability path points to significant medium-term risks. Despite continued rally possibilities, investors should exercise heightened caution.

Three Key Questions

  1. Transparency: How many of the gigantic AI investments are being obscured through opaque financing structures (SPVs, vendor financing)?

  2. Responsibility: Who bears the consequences if the USD 5000-6700 billion in AI investments don't generate adequate returns?

  3. Innovation: Is the race for AI dominance leading to genuine innovation or primarily to wasteful overcapacity like in previous technology bubbles?

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