AI: Not all bubbles are bad
A trillion of AI investment will ultimately be wasted – but the technology could yield ten times that in value, says Nick Murray-Leslie
The world has seen investment frenzies before – the railway mania of the 19th century, the dotcom boom of the late 1990s and the crypto surge of the 2020s. But what we are witnessing in artificial intelligence today dwarfs them all.
According to recent analysis by the Financial Times, US venture capitalists have already poured $161bn into AI this year – roughly two-thirds of their total spend. That figure towers over the $10.5bn invested into internet companies in 2000 (around $20bn in today’s money) and even exceeds the $135bn spent at the peak of the SaaS boom in 2021. The current AI wave is, quite simply, investment on another scale altogether.
The beneficiaries of this capital flood are, for now, a small elite. Ten companies – including OpenAI, Anthropic, xAI, Databricks, Perplexity and Scale AI – have absorbed the bulk of it, collectively seeing their valuations rise by nearly $1 trillion.
At first glance, this looks like a textbook bubble. But here’s the point. Bubbles are not all bad. We saw this with the dotcom crash – a lot of money wiped out, then the exponential rise of enduring businesses like Amazon and many more.
Bubbles bring money rushing towards talent and transformational technology. And like a fire in the outback, they create chaos and destruction but the survivors prosper.
Every technological revolution has followed this arc – exuberance, excess and then endurance
Every technological revolution has followed this arc – exuberance, excess and then endurance. The dotcom crash wiped out countless companies, yet from that creative destruction emerged the likes of Google, Amazon and Meta, the giants that now define the internet age.
The AI era is following a similar trajectory – only faster, larger and more global. Today’s investors are motivated by something both ancient and modern: fear of missing out. We’ve effectively gone from market malaise to rampant AI animal spirits in a few months.
Those spirits are fuelled by the belief that AI will not just create new industries but redefine every existing one. From automated software development to AI companions, the promise is a multi–trillion-dollar transformation.
Exuberance carries risk
Yet the exuberance carries risk. Some start-ups with $5m in annual recurring revenue are commanding valuations above $500m – 100 times earnings, eclipsing even the heights of the 2021 boom. Such expectations are unsustainable for most.
But in venture capital, most bets are meant to fail. A trillion of AI investment will ultimately be wasted – but the technology could yield ten times that in value.
The pursuit of artificial general intelligence – machines capable of matching humans across all economically valuable tasks – will inevitably involve missteps and misallocations. But the long-term rewards may make them look trivial in hindsight.
That, perhaps, is the defining feature of this AI era: a handful of gravitational giants, surrounded by a constellation of innovators feeding on their breakthroughs.
At Chatsworth, we’ve seen this story before. Innovation attracts speculation; speculation drives acceleration; acceleration creates transformation. There will be winners and losers, as always. But history is clear – bubbles are the price we pay for progress.
AI investment may be overheated, but it is also the furnace from which the next generation of world-changing companies will emerge.
The capital may be colossal, but so too is the potential. The internet connected the world; AI may well reimagine it.
Nick Murray-Leslie is CEO of Chatsworth