The rapid surge of artificial intelligence (AI) stocks this year has ignited fears of a looming market crash that may surpass the damage wrought during the dot-com bubble of the early 2000s. Financial experts and industry insiders are increasingly sounding alarms about what they describe as an “order-of-magnitude overvaluation bubble” in AI-related equities, speculating that the current enthusiasm may soon meet a harsh reckoning, potentially sending the overall stock market into freefall.
University of Michigan business professor Erik Gordon, renowned for his insights on entrepreneurship and financial markets, has expressed sharp concerns over the current AI boom. Comparing it to the infamous dot-com bubble, Gordon highlights how some AI startups are facing precipitous declines in stock value, with CoreWeave—a Nvidia-backed AI infrastructure firm—losing 30% of its market capitalization in just two days, equating to a wipeout of approximately $23 billion. This dramatic fall follows CoreWeave’s latest financial results, which revealed widening losses and challenges in scaling infrastructure.
Gordon contrasts CoreWeave’s valuation and collapse with Pets.com, the poster child for dot-com excess. Pets.com, despite high-profile backing from Amazon and venture capitalists, peaked at a market value of $410 million before collapsing under bankruptcy within a year. Gordon warns that the magnitude of losses in the AI sector could dwarf those from the earlier crash, as valuations of AI companies have ballooned far beyond sustainable levels.
However, not all experts agree on the severity or inevitability of an AI bubble burst. Investor Kevin O’Leary has argued that unlike in 2000, the productivity gains of AI are tangible and measurable, suggesting the enthusiasm is driven by real economic value rather than mere hype. According to O’Leary, AI’s impact on company revenues and operational efficiencies may help sustain current stock valuations, potentially averting a collapse resembling the dot-com fallout.
Nonetheless, skepticism remains high following the disappointing rollout of OpenAI’s GPT-5, which underwhelmed expectations and illuminated the industry’s heavy dependence on hype. Analysts have noted that many public companies rushed to announce AI initiatives or branded existing products as AI-enhanced, partly to boost their stock prices — a strategy reminiscent of the dot-com era’s overextension. The similarly critical perspective points to AI’s challenges in delivering on promises of consciousness or sentience, labeling such claims as marketing tactics fueling inflated valuations.
Adding to the concerns, a recent MIT report found that about 95% of AI projects across companies are failing, signaling that widespread implementation hurdles and scalability problems could stall long-term profitability. Investors are beginning to question whether the current AI investment frenzy is sustainable or if a painful correction is imminent.
Industry figures including OpenAI CEO Sam Altman have cautioned that the market’s exuberance might be overheated. Altman likened the AI craze to historical bubbles by acknowledging that many investors might be “too excited about AI,” raising red flags about inflated expectations versus achievable outcomes.
The implications of an AI bubble bursting are vast. Beyond individual stock declines, the sector has played a pivotal role in propelling broader market indices, much like chipmakers did in the 1990s. A significant correction in AI equities could therefore ripple through the stock market, triggering a wider downturn.
Despite potential risks, AI remains a transformative technology with the capability to revolutionize industries over time. The critical question in financial markets revolves around the pace and scale of adoption, profitability, and realistic valuation adjustments. For now, investors are advised to exercise caution, thoroughly evaluate the fundamentals of AI-driven companies, and prepare for increased volatility.
As the debate continues, the stakes remain high: will AI stocks collapse under the weight of hype and overvaluation, or will measured progress validate current optimism? The coming months will be crucial in determining whether the AI boom is a durable breakthrough or a bubble destined to burst.