As the term ‘AI bubble’ floats around the City, Susannah Streeter examines the outcomes of a potential dot.com-style boom and bust in today’s Notebook

Is the AI bubble about to burst?

I have a peculiar sense of déjà vu. It’s a bit like reaching the top of a rollercoaster ride, and teetering on the edge, remembering what it feels like to plunge down into the abyss. Twenty five years on from peak dot.com and it seems abundantly clear that another bubble has inflated around financial markets. The talk has moved rapidly from whether the hype over AI might be justified, to just when this wave of optimism will crash, and just how many companies will be dragged under the turbulent waters.

The Bank of England’s financial policy committee has warned the risk of a sharp market correction has increased, while Jamie Dimon, the boss of JP Morgan, believes the reckoning could be in the next six months to two years. Nvidia’s giant circular deal, locking OpenAI into its orbit by promising $100bn of funding if it continues to buy its processors, has echoes of vendor financing which fuelled dot.com valuations.

This dependence, reminiscent of an infinity mirror, presents big risks if the current demand for AI starts to crack. And it certainly does seem like we have passed the peak of expectations in research firm Gartner’s famous hype cycle and are indeed heading towards the ‘trough of disillusionment’, with many companies’ underwhelmed by current returns on their AI investment.

But, as the dot.com boom and bust tells us, there will........

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