Are We Riding an AI Bubble?
Is there an "AI Bubble" In the startup ecosystem that is about to burst?
Investor zeal swells. Startup funding in H1 2025 surged to $162.8 billion, a second-highest record, led by AI—64 percent of total deal value tied to it. Huge rounds lit up headlines: OpenAI’s $40 billion, Meta’s $14.3 billion into Scale AI. But raising money for VC funds dropped sharply. Roughly $26.6 billion closed across 238 vehicles—a 33.7 percent fall year-over-year. Reuters+1U.S. News Money
Investments hurtle, deals concentrate. In Q2 2025, 16 firms soaked up nearly $40 billion of $91 billion global VC funding. Such clustering sends systemic risk skyward. AInvest
A thundering crescendo of capital—echoes of 2021’s post-COVID mania—though not quite matching the earlier froth, signals caution. Crunchbase NewsCoReCo TechnologiesU.S. News Money
Warnings and Observations from Experts
OpenAI’s Sam Altman cautioned that investor excitement may be excessive, hearkening to the dot-com collapse. Overvalued startups with scant resources getting outsized valuations—speculative exuberance distilling from a kernel of truth. The VergeNew York Post
Apollo’s Torsten Slok rings alarm bells: current overvaluations among AI titans may even dwarf those before the dot-com crash. Returns lag infrastructure investment. Tom's HardwareFuturism
Erik Gordon at the University of Michigan projects investor losses could multiply those from the dot-com bust. He cites CoreWeave’s 33 percent plunge—the stakes are far higher today. Business Insider
Voices with steadier outlooks note that productivity gains lag hype; tech often needs breathing space to integrate. AI may follow past tools like spreadsheets: slow maturation, then widespread utility. The Washington Post
Conversely, Greg Brockman of OpenAI urges founders not to flee. Domain-deep ventures—not shallow “AI wrappers”—still matter. Relationships with industries like healthcare hold durable potential. Business Insider
Echoes of the 2021 Bubble
2021’s venture boom brimmed under near-zero rates; capital gushed into all corners. 2025 sees similar highs, yet symbolism differs. Recovery follows 2022–23 tumble; VC pulling back, then stabilizing. Funding rebounds—but more selectively. CoReCo TechnologiesCrunchbase NewsU.S. News Money
Now, AI drives the renewal. In North America, AI/ML startups absorbed 62–70 percent of VC dollars in Q4 2024 and Q1 2025. SoftBank’s $40 billion OpenAI injection anchored the surge. CoReCo Technologies
Yet 2025’s rise lacks the widespread trivial deals of 2021. Fewer but larger injections. The valuation mania exists—but perhaps with more shape, more structure.
Signals of Bubble and Signs of Sane Investment
Bubble indicators:
Hyper valuations, crowded into a few players. AInvestStartup Guru Lab
Valuation premiums are outsized compared to realized performance. CRR analytical frameworks warn of misalignment risk. arXiv
Disappointment from GPT-5’s modest gains. Momentum toward AGI perhaps faltering—recalling AI winters. Financial Times
Wild valuation swings: DeepSeek’s launch wiped $1 trillion from U.S. tech stock caps. Sudden shocks show fragility. Wikipedia
Counterpoints:
Capital deepening infrastructure, semiconductors, and data centers herald foundation-building. The Washington Post
Founders with domain fluency may endure post-hype tiers. AI innovation in contexts that matter can endure. Business Insider
Constructive comeback: AI may follow a pattern of painful reevaluation before launching sustainable success. Forbes
Newsletter Wrap
Capital the torrent. Hype the roar. But beneath lie foundations—hardware, domain knowledge, infrastructure. A burst now could spill, not vanish.
Analogy flickers: a delta—rivers of investment converge. Some channels deepen; others flood and recede. The terrain morphs. Founders wise enough to dig bedrock, not chase shallow pools, might survive the floods intact.
Be cautious. Track CRR gaps, productivity inflection points. Watch large overvalued unicorns wobble. Yet build from substance. A bubble may be present. But if the tap roots hold, a resilient ecosystem may emerge.
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