The AI bubble and a potential stock market crash

Investor anxiety about an AI bubble is at “fever pitch” with fears growing that a surge in artificial intelligence investment could lead to a crash similar to 2000’s dot-com bust.

Artificial intelligence has seen huge investment: 50% of venture dollars were spent on AI start-ups during the first half of 2025, according to data from CB Insights. And in those six months “AI funding exceeded spending for all of last year”, said Business Insider.

Yet investors have a number of concerns. “Some are wondering whether large language models are actually powerful enough to develop the long-desired superintelligence; some fear tech companies’ massive expenditures won’t pay off; and some are worried that less experienced investors are getting caught up in the hype.”

Why is there so much concern now?

There are a few big reasons. First, is a Massachusetts Institute of Technology report which found that 95% of companies investing in generative AI have yet to see any financial returns. Given that there has been between $30 billion (£22.1 billion) and $40 billion (£29.6 billion) in enterprise investment in generative AI, the lack of returns is concerning.

Another is a warning from OpenAI CEO Sam Altman that investors are getting “over-excited” about AI. He told The Verge: “Are we in a phase where investors as a whole are over-excited about AI? My opinion is yes. Is AI the most important thing to happen in a very long time? My opinion is also yes.” He added that some valuations of AI start-ups are “insane” and “not rational”.

Some investors are also spooked by reporting from The New York Times that Meta is looking at “downsizing” its AI division, with some AI executives “expected to leave”. It could mark a significant change from Meta CEO Mark Zuckerberg, who has heavily invested in shaking up his company’s artificial intelligence operations in recent months.

Will the bubble burst?

It’s too early to call a peak in the US stock market, “but the signs of one are starting to appear”, said UnHerd. Share prices in the data mining and spyware firm Palantir fell by 10% last week, while AI chip maker Nvidia fell more than 3%, and other AI-linked stocks such as Arm, Oracle and AMD also fell.

Is it all doom and gloom for investors?

Not necessarily. If comparisons to the dot-com bubble are apt, there are likely to be some big losers – and some very big winners.

Although many companies went under during the dot-com bubble, many companies survived and went on to become market leaders – most notably, e-commerce giant Amazon.

“Even when the dotcom bubble burst, there were a handful of fairly obvious winners that eventually came roaring back,” said CNBC‘s Jim Cramer. “If you gave up on Amazon in 2001, you missed the $2 trillion (£1.4 trillion) boat.”