During the 2008 financial crisis the housing bubble burst because of mortgages to unqualified borrowers, complex financial products like mortgage-backed securities (MBS), and lax lending standards. So, a faulty system depending on we, the people, paying off mortgages and loans that were not being paid back. Seems a logical cause for a bubble to burst.

Before, the dotcom bubble bursted because of extreme overvaluation of companies, which were not performing up to the expectations, so the revenue wasn't there.

Now there is obviously an AI bubble as has been pointed out many many times, but currently the companies involved are still meeting their expected revenue goals (looking at NVIDIA, Meta, Google even though that is not strictly an AI-related company, their current valuation is also due to their AI developments). Of course, investing in each other and buying each other's products, causing stocks to rise, is super inflatory, but is not punished so far. It seems.

Now, a geopolitical conflict involving a certain chipmaker to not be able to produce would likely pop the bubble overnight. Given the current geopolitical situation and the people involved, this is not unlikely in the coming years. But as long as this doesn't happen it appears to be business as usual, and the AI-race will continue.

Now, comparing this to earlier bubbles, the pattern is similar. An industry is pumped to the moon, a bunch of people make an insane amount of money, the bubble bursts and most people get screwed over with a few winners. The question is always: how high will it go when the companies are profitable and how deep will the lows be?

As a retail investor who is not trading daily, this situation is extremely difficult and hard to predict when also just having a regular 9 to 5 job. I know I won't be able to predict it, so it is a risk analysis whether the current valuations will be the future lows OR if big companies with PE ratios of 50 are already a selling sign for the retail investor. This would even apply to ETFs like VWRL, since their share of NVDA is also high. The whole market will likely go down when this bubble bursts, just some companies more than others. given earlier arguments, I feel like going short here is stupid. Thereby, world governments are hedging inflation (buying loads of gold), which also has geopolitical implications. Now I believe in the mantra that time in the market beats timing the market but probably needing the money in 3 years or so, the current situation is a spicy sauce. It seems like hedging inflation (e.g. buying gold and funds like Berkshire) is not a bad move.

People keep comparing today’s AI market to the Dotcom bubble, but the structure is fundamentally different. Back then, the market was dominated by hundreds of small, non-viable companies with no revenue and no real product. Today, the core of the AI build-out is driven by the most profitable, cash-rich companies on the planet: Microsoft, Google, Amazon, Apple, Meta, NVIDIA, Broadcom, and the hyperscalers. These firms have actual products, real demand, and business models that already scale.

What is similar to the Dotcom era is the valuation stretch and the expectation curve. We are in a CapEx Supercycle where hyperscalers are pouring unprecedented amounts of money into GPUs, data centers, power infrastructure, and model development. This phase cannot grow linearly forever. At some point, build-out slows, ROI expectations tighten, and the market will reprice.

When that happens, here’s what to expect:

Winners: diversified hyperscalers, cloud platforms, chip manufacturers with real moats, and software ecosystems that can monetize AI at scale.

Survivors but volatile: model labs, foundation model vendors, and second-tier hardware companies that depend on hyperscaler demand cycles.

Casualties: AI “feature startups,” companies without defensible tech, firms relying on perpetual GPU scarcity, and anything whose valuation implies perfect execution for a decade.

This isn’t a bubble waiting to burst into nothingness but a massive, front-loaded investment cycle that will normalize once infrastructure saturation and cost pressures kick in. The technology is real, the demand is real, and the winners will be even large, but the path there won’t be a straight line.

Edit: Thank you all very much for your posts and discussion. This seems to be a very controversial topic, but this is also something where everyone can learn.

I’m sorry for my short sidedness and I understand that a lot of things right now are AI related. But what would be the tangible impact (other than job loss I think) that would cause large scale issues of the AI bubble burst?

TIA.

https://www.commondreams.org/news/ocasio-cortez-ai-bailout

In my opinion, the market is ripping right now simply due to most of the AI companies with actual consumer facing products and software still being private. The public companies (Mag 7) are almost all making money by selling chips or selling compute, but eventually the companies at the end of the chain (ie. OpenAI) buying the chips & compute need to make money.

People know OpenAi isn’t making money, but no one seems to care. I feel like once OpenAi’s financials are all available , investors will realize it’s just not as profitable as they anticipated or the profits won’t come as quickly as they want, and demand for everything AI related deflates. I mean if OpenAI can’t show a clear path to profitability, the company that’s being given every financial handout available, then how would other AI product or service companies stand a chance?

I don't like generative AI, with it flooding the internet with bot content, but why do people look forward to the AI bubble bursting as a solution to it? I've literally seen verbatim online, "I can't wait til the bubble pops", I'm sure you've seen something similar.

As far as I gather, if the burst/crash happens, all that will happen is that we enter a recession, as in we lose our jobs and grocery prices go up, but all of the problematic AI would still exist.

Sure, I'd imagine 95% of the AI companies that exist today will go bankrupt, but that woudln't affect OpenAI (edit: OpenAI is a bad example, but the main point still stands), Claude, Google, etc. The companies that will be going bankrupt would be companies who sell stuff like "AI-powered automatic dog feeder" or "your new AI anime catgirl girlfriend".

The big guys in the AI space can just weather the storm, and in the process maybe even get rid of a few competitors to get even bigger in the future. Or get bailed out by the US government like in 2008.

It's like if you wish for an economic crash for restaurants because you believe that McDonald's and Domino's Pizza is destroying people's health, but then it actually happens and all it affects are your local businesses, while all of the global chain restaurants stay strong. That is literally what happened during COVID-19 5 years ago.

Am I missing something?