AI Boom: Bubble or Breakthrough?

Despite spectacular valuations within the artificial intelligence sector, the current boom doesn't exhibit the mania or irrationality typically associated with a bubble. While a bust remains a possibility, key differences distinguish this period from previous speculative episodes like the dot-com era. AI's growth is underpinned by strong profitability, self-funded investment, and real-world productivity gains.

Investment in AI infrastructure, including chips and data centres, is driving global economic growth and boosting productivity. Unlike the dot-com bubble, companies at the core of the AI boom, such as Alphabet, Nvidia, and Microsoft, are generating substantial revenue. This boom is supported by strong balance sheets, disciplined capital markets and widespread adoption.

However, concerns persist, including the potential for circular investments to inflate valuations artificially. Some analysts suggest that the industry's momentum relies on assumptions that may not hold indefinitely, and the availability of high-quality data for training AI models may be exhausted in the coming years.