Sourajeet Pradhani
“Today, if you go to a ‘pani puri wala’ in India, he might even claim to prepare his pani puris using AI. People, especially businesses, are using the term Artificial Intelligence in everything they do.”
In recent months, the global financial community has been abuzz with discussions surrounding a potential bubble in Artificial Intelligence (AI) stocks. The enthusiasm around AI has driven US equity markets to record highs. Companies like Nvidia, Microsoft, and Alphabet have witnessed unprecedented market capitalizations, fuelled by expectations that AI will reshape industries, boost productivity, and unlock trillions in value.
However, amid this euphoria, a rising chorus of sceptics — including the famed investor Michael Burry, known for predicting the 2008 financial crisis — warns that this AI-driven rally may not be sustainable. The question, therefore, arises: Are AI companies truly the future, or are we witnessing another financial mirage in the making?
To understand the growing concerns, it’s important to look at the mechanics of the AI stock rally. Over the past two years, valuations of major AI-related companies have surged far beyond traditional metrics. Nvidia, the undisputed leader in AI chip manufacturing, has seen its price-to-earnings (P/E) ratio stretch to levels reminiscent of the dot-com boom. The company’s revenue growth has been spectacular, driven by exponential demand for data centres and large language models.
Yet, the broader AI ecosystem — spanning smaller startups to mid-cap tech firms — has also been swept up in speculative frenzy, many without tangible business models or profitability. The optimism hinges on the assumption that AI will become a pervasive technology like electricity or the internet. But as history has shown, revolutions in technology often take longer to mature than markets expect.
Michael Burry’s warning of an imminent market crash stems from the belief that investors are overestimating short-term gains while underestimating risks. Drawing parallels to the dot-com bubble of the late 1990s, Burry and other contrarian investors argue that the current AI mania mirrors the irrational exuberance that drove internet stocks to unsustainable highs before their collapse in 2000. During that period, companies with little more than “.com” in their name commanded multi-billion-dollar valuations despite negligible revenues. Similarly, today, the term “AI” has become a golden ticket for fundraising and stock price surges. The fear is that once earnings fail to justify valuations, the correction could be swift and brutal.
However, comparing the AI boom to the dot-com era is not entirely fair. Unlike the speculative internet startups of the late 1990s, today’s leading AI firms are backed by strong balance sheets, established revenue streams, and tangible technological progress. Giants like Microsoft and Google are integrating AI into their core offerings — from cloud computing to office productivity tools — thereby improving efficiency and expanding their addressable markets. The question, therefore, may not be whether AI is the future, but rather how fast that future will materialize.
The challenge lies in distinguishing genuine innovation from speculative overreach. While leading firms may justify their valuations through earnings growth and product adoption, smaller players often trade on hype.
For prudent investors, the current environment calls for balance — embracing AI’s transformative potential while maintaining realistic expectations. Diversification remains key; allocating selectively to established players with proven profitability and strong research ecosystems can offer exposure to AI’s upside while mitigating downside risks.
Conversely, chasing unproven AI startups purely based on narratives can lead to painful losses if the bubble bursts. The focus should be on fundamentals: sustainable earnings growth, competitive advantage, and scalability.
Markets are driven by perceptions and not statistics alone. The growing negative perception towards AI stocks may derail the trust of the VCs in the AI segment. Hence it is important to differentiate reality from the hype, and continue to have faith and belief in the companies, which are actually making a difference.
The writer is the Founder and CEO of fintech startup FinCist.
