Is The OpenAI-AMD Deal Another Sign of an AI Bubble?

After starting a new job at a big AI firm last year, an acquaintance was invited to several Slack channels, par for the course in the corporate world. But among updates on lunch offers and company news, she noticed another channel, one for newly minted young millionaires. Most of the conversations are about buying a home, taxes or investing, but in others, newly wealthy 27-year-olds wonder what kind of sports cars they should buy. If that’s not the opening scene of a documentary about a bubble, I don’t know what is.

AI megadeals, like Monday’s announcement of a multibillion-dollar partnership between OpenAI and AMD, further prove what Yale law school professor Natasha Sarin observed in The New York Times: There are currently two economies — AI and everything else. AMD shares surged 30% as word spread of the deal, which followed Nvidia and Intel’s recent announcement of plans to collaborate on new custom data center and consumer chips that combine Intel’s CPU and Nvidia’s GPU. The tech-heavy NASDAQ is reaching new highs, and despite tariffs and turmoil, other markets are chugging along as well.

But what happens when the AI bubble starts to leak? There are some early potential warning signs that things have gotten a little too frothy and may be pushing us in 2000s dot-com bubble territory.

When The Bubble Starts To Leak

Consider the case of Friend, an AI wearable that allows users to have conversations with a large language model. Setting aside that plenty of other LLMs allow users to speak and hear responses on devices they already own, Friend is mostly known for its relentless advertising push on the New York City subway and the resulting graffiti responses warning of AI’s harms.

But Friend has all the hallmarks of a bubble company — a young Harvard dropout founder raises $7 million dollars and seems to spend most of it on advertising while shipping (or failing to ship) a product. Early reviews have been brutal, with one in Fortune noting, “it’s like wearing your senile, anxious grandmother around your neck.”

Setting aside absurd, high-profile flops, paths to profitability remain scarce for many AI companies. OpenAI makes money primarily through subscriptions, enterprise contracts and API licensing, and it recently launched a partnership with Shopify to allow merchants to sell directly in the platform. But none of those seem like they’ll be enough to cover the nearly $60 billion the company has raised and its multimillion dollar burn rate per year. Other platforms are part of larger tech companies and thus more protected because the legacy business can pay for their development — but how long can that last?

Now, the usual caveats apply. Even if the AI bubble does burst, the technology is unlikely to disappear. The leaders and companies might shift, but just like the dot-com bubble didn’t spell the end of the internet, the AI bubble isn’t the end of the LLM.

Looking Beyond the Bubble

What the bubble could do is tank an already precarious stock market and drive a recession. It could also cost the United States the opportunity to dominate in the global AI race. China has made no secret of its AI ambitions, and any pause in activity in the U.S. could let them get ahead. When the early dot-com economy was being built, it was largely in Silicon Valley and New York; the AI race is global.

Given how far down the path we are, there’s not a lot to be done. We might just have to suffer through a correction and then live in a world where AI becomes a lean-back technology, woven into the fabric of the internet, just another series of tubes that powers daily activities.

The Sora videos we’re all making right now will probably resemble those MySpace pages we all built back in 2005, with blinking backgrounds and unfortunate haircuts; but just as social networks still exist, we’ll see AI generated content all the time and not blink an eye. ChatGPT might go the way of AOL, but something else will take its place.

As for those newly minted millionaire kids driving their supercars all over the Bay Area, they might have to downshift to a practical Honda Accord for a while. But don’t worry — they’ve all got great ideas for a new company, and some of them might be back in the driver’s seat soon enough.

Forbes