Cracks in the AI hype? Warning signs suggest the Bubble could soon explode
On Tuesday, tech stocks fell sharply after a report from MIT said most AI investments give 'zero return' for businesses. MIT academics wrote: 'Despite $30-40bn in enterprise investment into Generative AI, 95pc of organisations are getting zero return'. Nvidia shares dropped 3.5pc and Palantir fell 9pc after the report.
MIT's findings could be the pin that pops the tech stock bubble, which has increased US stock values by trillions. Since ChatGPT's launch in 2022, Silicon Valley has claimed AI chatbots will transform the economy, promising cost savings and productivity gains. MIT's report suggests the AI revolution has stalled, despite big investments, as reported by The Telegraph. MIT surveyed 150 business leaders and 350 employees, finding only 5pc of AI pilots generate millions in value; the rest show no measurable profit impact. Marko Kolanovic, former JP Morgan head of research, commented: 'Sounds about right for a bubble'. MIT found half of AI projects fail, 80pc of companies explored AI, but only 40pc actually deployed it. Only 20pc of enterprise-grade AI systems reached the pilot stage and just 5pc reached production.
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Many employees prefer using consumer AI products like ChatGPT on their own rather than corporate AI tools. The report emphasized: 'AI is already transforming work, just not through official channels'. Despite benefiting from AI, OpenAI CEO Sam Altman warned investors: 'Are investors overexcited? My opinion is yes… some people stand to lose a phenomenal amount of money'.
Investors worry about SoftBank, which invested billions in OpenAI; its shares fell 7pc on Tuesday. OpenAI recently launched ChatGPT-5, which underwhelmed users; improvements were seen as small or incremental. Morgan Stanley predicts $3tn will be spent on data centres over three years, mostly fueled by debt, to support AI growth, as stated by The Telegraph.
Morgan Stanley also projects AI could add $16tn to the S&P 500 through 40pc salary savings, though MIT's report suggests this may be unrealistic. Meta announced a reorganization of its AI division, including staff reductions, showing even big AI believers are cautious. Mark Zuckerberg has spent hundreds of millions to hire AI engineers at Meta, as per the New York Times report.Despite the sell-off, the market hasn't collapsed completely; some analysts see it as just a speed bump. Dan Ives, tech analyst at Wedbush Securities, said skeptics of the tech rally will be proven wrong again. Nvidia will report results next week, potentially showing the true state of AI investments in major companies. Ives believes the tech bull cycle will continue for another 2-3 years, but many are still listening for the ominous pop, as mentioned by The Telegraph.
Q1. Is the AI boom at risk of a market crash?
Yes, experts warn that most AI investments show zero return, which could trigger a tech stock bubble burst.
Q2. Are big companies slowing down their AI projects?
Yes, many firms like Meta and SoftBank are cautious, with AI projects failing or being scaled back.
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