New Delhi [India], October 24 (ANI): Amid the recent surge in artificial intelligence (AI) investments, concerns have been raised that the AI boom is beginning to show bubble-like features, such as rapid investment flows, high valuations, and speculative enthusiasm. However, Goldman Sachs noted that the current situation differs fundamentally from past bubbles like the dot-com era.
In a recent report stated that AI bubble concerns have resurfaced due to the rise in valuations of AI-exposed companies, massive ongoing AI spending, and the increasing circularity of the AI ecosystem. The report questioned whether these concerns are warranted or overblown.
It stated “while some features of the current period rhyme with past bubbles, and the circularity of deals warrants caution, public market valuations and capital market activity levels remain below their Dot-Com peaks”.
The analysts of the firm, Eric Sheridan, Kash Rangan, Peter Oppenheimer, and Ryan Hammond, highlighted that although there are reasons for caution, the U.S. tech sector is not in a bubble, at least not yet.
Sheridan expressed greater concern about the large gap between public market valuations and the higher valuations seen in private markets.
The report further noted that a few established technology giants have dominated the AI space so far. In contrast, most historical bubbles formed during periods of intense competition when investors and new entrants rushed into the market.
While competition in AI is increasing, established players continue to lead the initial wave of growth.
According to the report, the present market environment shares several traits with past bubbles, such as a sharp rise in absolute valuations, high market concentration, greater capital intensity among leading companies, and the rise of vendor financing.
The firm added that since mid-2023, it has anticipated a major AI investment cycle led by a surge in hardware spending to train AI models and run AI queries.
However, the size, speed, and circular nature of recent AI investment announcements have raised questions about the sustainability of AI capital expenditure.
Despite these concerns, the report believes that the current investment levels are sustainable for now.
It stated “we continue to see current investment levels as sustainable, though it is less clear whether companies making the investments today will emerge as AI winners”.
What remains uncertain, the report concluded, is whether the companies making these heavy investments today will ultimately emerge as the true winners of the AI race. (ANI)
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