Here's What Might Happen When The AI Bubble Pops

"When [the bubble] breaks, it's going to be really bad, and not just for people in AI," entrepreneur and AI expert Jerry Kaplan said at a Silicon Valley panel recorded by the BBC. "It's going to drag down the rest of the economy." This warning comes at a time when economists, investors, business owners, and the public at large are questioning whether all the money being poured into artificial intelligence (AI) is going to be worth it. Will it all pay off in a speculative future where AI might lead to a better and thriving society, or will the bubble burst and impact the global economy with it?

A bubble forms when excitement drives valuations beyond what the technology or business fundamentals can justify. With AI, huge amounts of money are being funneled into companies, and investors are betting heavily on the promise of AI reshaping society. This boom, however, may not be sustainable.

OpenAI, creator of ChatGPT, still hasn't turned a profit despite massive investment. Nvidia has also seen a surge in money because of the demand for its computational products to meet AI needs –- and this AI-driven chip shortage could make the products you buy more expensive. However, much of that demand is driven by circular investments. Companies funded by Nvidia then spend that money to buy its products. As these patterns intensify, the question becomes that if we are in a bubble, and how bad it will be if it bursts?

It seems we are currently seeing the rise in AI and the collapse of everything else. One of the strongest signs of a forming bubble is the imbalance between how much money is being poured into AI and how little financial return is being generated. Major AI companies continue to operate without substantial profits, yet investors keep putting more capital into them. This brings to mind the dot-com bubble, where companies with unproven business models received massive funding simply for being part of a trendy new technology. AI today appears to be following a similar path.

Nvidia's situation is another red flag. Its explosive growth is tied to demand for the hardware needed for AI, but much of that demand is circular. Nvidia invests in AI startups that then use those funds to buy Nvidia chips, inflating the company's success without reflecting real market stability. This kind of investment loop artificially boosts valuations, creating the illusion of sustainable demand. If the loops break, though, the value it props up could collapse with it.

The large amounts of debt in the tech sector add even more pressure. Much like the 2008 housing crisis, where easy borrowing fueled an unstable boom, many AI companies are taking on massive loans to grow quickly. Billions of dollars in tech borrowing this year alone indicate an ecosystem dependent on constant investment rather than proven profitability.

The boom in AI has created a demand to build more and more data centers. In fact, the energy needs of AI are so high that it might make your power bill go up even if you don't use AI. These facilities have a limited lifespan and can't be repurposed the way traditional infrastructure, like roads, can. If AI investments collapse, many of these data centers could quickly become abandoned industrial husks. As Kaplan told the BBC, "We're creating a new man-made ecological disaster."

The economic fallout could also be severe. Tech-related stocks make up roughly a third of the U.S. stock market, and Nvidia alone is valued higher than the entire country of Japan. A sudden collapse in the AI sector would therefore ripple through financial markets globally. Businesses dependent on AI-driven growth could struggle and the stock market could take a massive hit. Struggling businesses often lead to layoffs, and unemployed people spend less money, which impacts the economy, as well.

Finally, the interconnected borrowing among tech companies creates a dangerous level of shared financial risk. With no single company holding all the debt or responsibility, a collapse would be chaotic and difficult to contain. Similar to the dot-com bust or the end of the Gold Rush, the structures built to support the AI boom could be left behind as empty shells. Once the bubble pops, recovery may take years.