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Why It’s Easy to Think AI Is a Bubble—and Why It Might Not Be
AI’s meteoric rise has sparked both awe and scepticism—is it a bubble or a true revolution? History warns of overhyped tech, but Silicon Valley insiders believe we’re just getting started. Here’s why AI might be more than just hot air.
Richard Hadler
January 23, 2025
Richard Hadler here from Founders Capital. We scour Europe for the top 1% of Start-ups led by epic Founders, giving them access to our world-class investor & partner network to scale their ventures to heady heights.
Artificial intelligence (AI) is having a moment. Scratch that—it’s having the moment.
In what feels like no time at all, AI has gone from the stuff of academic conferences to tools your nan can use to summarise recipes or create a photo of her as a ‘70s disco queen. Billion-dollar valuations are being thrown around like confetti, and startups with slick pitch decks are raising funds faster than you can say “generative pre-trained transformer.”
So, yes, it’s tempting, maybe even reasonable, to think AI is a bubble. History teaches us that when things grow too big, too fast, they often pop. But here’s the twist: what if this time, the sceptics are wrong? What if AI isn’t another dot-com bubble, cryptocurrency craze, or “clean energy 1.0” meltdown? What if we’re just at the start of a real, transformational wave? Speaking to the tech glitterati in San Francisco, many are betting big that AI is more electricity than fad—and they might be onto something.
Why It’s So Easy to Call Bubble
1) The Dot-Com Déjà Vu
Remember the late ‘90s? Startups were raising billions for ideas like “selling dog food online,” and anything with “.com” slapped on the end was guaranteed to soar—until it wasn’t. When the bubble burst, it wiped out trillions and left investors wondering if they’d confused optimism with sheer lunacy.
Parallel to AI:
In 2023 alone, AI startups raised a staggering $94 billion, with valuations climbing faster than a rocket on launch day. Companies are promising to “reinvent everything,” and the headlines echo the dot-com era’s breathless claims about the internet.
2) Crypto Crash Course
Ah, cryptocurrency—the Wild West of investment bubbles. Bitcoin promised to decentralise everything, and for a while, it looked like it might. Then 2018 hit, the bubble burst, and investors were left holding the bag (or the tokens).
Parallel to AI:
Generative AI tools like ChatGPT and MidJourney are wildly popular, but there’s a nagging question: how do these companies make real money? Sure, millions are using the tools, but building a sustainable business model is an entirely different story.
3) The Green Energy Dream
Clean energy in the early 2000s had all the hype AI enjoys today. Grand promises, billions raised, but far too many companies flopped under the weight of unrealistic expectations. The sector eventually matured, but only after the initial bubble burst.
Parallel to AI:
Like clean energy, AI is being heralded as the solution to humanity’s most pressing challenges. And while its potential is real, the gap between bold claims and actual outcomes can lead to some heady disillusionment.
Why AI Might Be Different
AI Isn’t a Product, It’s a Platform
This isn’t a case of one killer app. AI is becoming the foundation of everything. From supply chain optimisation to personalised healthcare, AI is weaving its way into every sector. By 2030, the global AI market is projected to hit $1.8 trillion (PwC). That’s not hype—that’s industrial-scale transformation.
What the Experts Say: “AI isn’t just the next big thing; it’s the next everything,” quipped a San Francisco VC over coffee (likely brewed by a machine learning algorithm).
Tangible Progress Is Happening
AI isn’t a pipe dream. It’s delivering results—and fast. OpenAI’s GPT models, for instance, have gone from quirky chatbots to systems that generate code, write essays, and draft legal documents. The pace of advancement is staggering.
Exhibit A:
Anthropic, a leader in AI safety, saw its valuation leap from $5 billion to $60 billion in just 12 months.
Perplexity AI, an AI-powered search engine, has tripled its valuation in less than six months. These aren’t companies with vague ambitions; they’re creating real value now.
Enterprise Adoption Is Driving the Boom
Unlike the dot-com bubble, where speculative consumer products dominated, AI is thriving in the enterprise world. Retailers are optimising supply chains, banks are using AI for fraud detection, and pharma companies are revolutionising drug discovery.
Example: One logistics giant recently used AI to shave millions off its annual costs. This isn’t theoretical—it’s happening in boardrooms today.
Big Tech Isn’t Betting—It’s All-In
Google, Microsoft, and Amazon aren’t just dabbling in AI; they’re restructuring their entire futures around it. Microsoft’s $10 billion partnership with OpenAI isn’t a moonshot—it’s a signpost for where the company sees growth.
What Silicon Valley Insiders Say: “Big tech isn’t hedging its bets. They’re putting everything on red, and red is AI,” one San Francisco engineer joked. “They’re not hoping it works—they’re banking on it.”
Scepticism Isn’t Bad—But Balance It with Conviction
It’s fine to be sceptical. It’s smart, even. Overzealous optimism has burned investors more times than they’d like to admit. But scepticism shouldn’t blind us to the transformative potential of AI. The truth probably lies somewhere in the middle: not every AI company will succeed, but those that do will define the future.
Separating Signal from Noise
For investors, the challenge is to find the real winners in a sea of hype. Look for companies with:
Clear use cases: Solving real problems, not hypothetical ones.
Scalable models: Growing sustainably, not chasing growth for growth’s sake.
Credible leadership: Founders who’ve been around the block and know how to execute.
So, Is This a Bubble?
Maybe parts of it are. The frothy valuations, the over-the-top headlines—they’re reminiscent of bubbles past. But the conviction from those leading the charge—from big tech to startups—suggests we’re not in the middle of a collapse but at the very start of something extraordinary.
Yes, there will be winners and losers. Yes, some valuations will come back down to Earth. But to dismiss AI as just another bubble risks missing what could be the most transformative technology of our time. As one FC member put it, “It’s not a bubble. It’s just inflating the future faster than most people are comfortable with.”
And really, isn’t that what progress always feels like?
Until next time!
Cheers,
Rich