Is the AI bubble about to pop?

Fears are growing that the AI bubble might be on the brink of bursting. Barry Collins weighs up what could go wrong

- Barry Collins

If you've been smiling quietly to yourself every time you looked at your pension statement over the past couple of years, you've probably got AI to thank for the cushier retirement. For now, at least.

The AI bubble is continuing to inflate at a rapid rate. In 2024, generative AI companies raised $56 billion from venture capitalists – close to double the figure from 2023, according to financial database PitchBook. In the first quarter of 2025 alone, AI startups secured $73.1 billion.

The reason that your pension pot has been growing faster than Japanese knotweed is that many funds are tied to the fortunes of the “Magnificent Seven” – a collection of AI-linked companies that are lifting the broader market (see below). Nvidia alone is now worth more than $4 trillion.

Much of this growth is a bet on the future. A bet that all these chips, all these new data centres, all these AI services will drive enormous future revenues. Far more than they’re doing currently. But if they don’t, if AI doesn’t become the irreplaceable workplace assistant it’s being sold as, there’s an awful lot of capital tied up in those soon-to-be-redundant data centres. If AI fails to live up to its hype, some predict it will make the dotcom crash look like a rounding error.

Reasons to be fearful

What should give you pause for thought before flicking through the Bentley catalogues? Well, there are more than a few signs that the AI hype is overcooked.

First is the extraordinary way those Magnificent Seven companies – Alphabet, Apple, Amazon, Meta, Microsoft, Nvidia and Tesla – have outperformed the rest of the market. During 2023-24, the weighted average share price of those seven firms rose by 156%, while the other 493 firms in the S&P 500 saw an increase of only 25%. America’s stock market is largely riding on the fortunes of AI.