The current wave of Artificial Intelligence (AI) is undeniably transformative, yet the dizzying valuations of many AI firms—often with minimal or non-existent profits—have led major financial institutions like the Bank of England and the IMF to sound the alarm on a speculative bubble. Predicting the exact date the AI bubble will burst is impossible, as experts note that you only know you were in one after it has popped. However, the sheer volume of capital expenditure and the lack of commensurate productivity gains (with one MIT study finding 95% of organizations getting zero return on generative AI investments) suggest a sharp market correction is a growing risk, potentially in the next few years, should the market realize that current expectations are unrealistic.
The fundamental ripple will begin when investors lose confidence because anticipated profits fail to materialize. The collapse will start with a freezing of investment funding. Venture capital firms, having poured billions into speculative growth, will slam the brakes on new deals, forcing startups with high burn rates to rapidly conserve cash. This initial financial shock will cause many AI companies to go bankrupt, especially those with weak fundamentals or circular financing deals where they rely on investment from their own hardware suppliers.
The resulting shock will spread across markets. Sectors directly tied to AI infrastructure—namely chip manufacturers and data center builders—will see demand for their products plummet, causing their stock valuations to fall dramatically. This concentrated capital destruction will lead to tighter financial conditions and a severe loss of wealth, ultimately acting as a catalyst for a wider economic recession. Thus, the most significant negative effect on other industry sectors will not be technical, but cyclical, as consumer spending declines and access to capital for all businesses dries up.
Regarding the workforce, the primary cause of mass unemployment in the short term will not be AGI (Artificial General Intelligence), but the economic recession triggered by the burst bubble. As businesses worldwide cut costs and stop hiring due to financial uncertainty, job losses will spread far beyond the tech sector.
While AI prices for basic services might drop temporarily due to bankrupt firms selling assets, the cost of advanced AI access is unlikely to fall for long. The largest, most financially sound tech giants (the Magnificent 7) control the core infrastructure. They will weather the storm, consolidate their market dominance, and maintain control over pricing. Finally, people will not lose interest in AI, but rather lose interest in the hype. The technology will be developed at a healthier, more realistic pace, focusing on proven, profitable use cases rather than impossible promises, much like the internet after the dot-com bust of 2000.