- Li Meng, chairman of the non-profit Chinese Society for Sustainable Development, addressed claims about the looming burst of the AI bubble.
- He said that the AI trend remains grounded in the Perez industrial cycle
- A bubble is inevitable, but several factors could either mitigate or amplify its burst.
Public concern about an AI (artificial intelligence) bubble playing out in the market grows louder as more analysts sound the alarm. Pessimists believe the AI bubble is potentially 17 times larger than the dot-com bubble, a phenomenon driven by speculative investments in Internet-based startups between 1995 and 2000. Meanwhile, others projected it to be four times worse than the 2008 financial crisis caused by the US housing bubble.
Crypto hangs in balance as uncertainty grips the AI market, adding fuel to the persistently bearish market sentiment.
AI Bubble is Inevitable
Li Meng, chairman of the non-profit Chinese Society for Sustainable Development (CSSD), recently addressed claims that “AI is inflating into an unprecedented mega-bubble” in an op-ed published on China Daily. Deducing from the historical pattern of the Perez industrial cycle, he said a bubble is inevitable. However, analysts should focus their attention on whether the sector has become “excessively financialized.”
The Perez industrial cycle was a model designed by Carlota Perez. It maps the technology cycle into five phases: a gestation period (pre-surge), installation period (beginning), turning point (bubble burst or crash), deployment period (golden age), and maturity period (mass adoption or market saturation).
Li highlighted that, like any other technological advancement, AI moves within the Perez cycle. While he admitted that it’s difficult to determine whether its market is already overheating in the US or China, he pointed out that adoption will determine the bubble’s propensity.
How Big Will Be the AI Bubble
Li noted that widespread adoption, which would narrow AI’s supply-and-demand gap, could significantly mitigate the bubble. On the other hand, its failure to translate into mass adoption could tighten returns on investments and overheat capital influx.
Li, citing Huawei forecasts, explained that there would be nearly 900 billion intelligence agents worldwide by 2035. However, the trend does not necessarily benefit massively overvalued companies that are merely offering app or wrapped models related to AI. He warned that the market had “massively overvalued” such entities, which could determine the AI bubble.
Final Thoughts
Another factor worth looking into is the inherent shortage of compute resources, such as graphics processing units (GPUs) and data centers. On this author’s personal note, one also has to consider the scenario where there’s demand and an influx of investments, but their failure to translate into workable infrastructure due to supply chain issues could be catastrophic.
The disconnect could trigger a severe market correction. It would intensify the pruning of speculative ventures from foundational tech giants.
Furthermore, the event could spill over to cryptocurrencies linked to or highly correlated with AI. These include Near Protocol (NEAR), Bittensor (TAO), DeXe (DEXE), Internet Computer (ICP), and Render (RENDER). Bitcoin (BTC) and other altcoins correlated with tech stocks could suffer from investors’ knee-jerk reaction to a burst in the AI bubble, but an ensuing capital rotation into crypto could ultimately turn the tide in their favor.
