Expert: AI boom to cause more investor pain than dot-com crash
The burgeoning artificial intelligence sector, currently experiencing a monumental surge, carries a more ominous risk for investors than the infamous dot-com crash, according to Erik Gordon, a clinical assistant professor at the University of Michigan’s Ross School of Business. Gordon, an expert in entrepreneurship and technology commercialization frequently quoted by major financial outlets, warns that while the underlying AI technology is indeed revolutionary, the market’s current valuations could lead to widespread financial suffering.
Gordon’s central thesis posits a critical difference between the current AI frenzy and the dot-com bubble of the late 1990s. During the internet boom, many of the pioneering companies were relatively small, nascent startups with limited shareholder bases. When the bubble burst, primarily “brave or foolish investors” were impacted as these companies often went bankrupt. In stark contrast, the titans leading the charge in artificial intelligence today are established, profitable giants such as Microsoft, Alphabet, and Nvidia. These companies boast massive market capitalizations and form significant portions of major stock indices, making them mainstays in pension funds and retirement portfolios. Gordon contends that while these industry behemoths are unlikely to go bankrupt, a significant downturn in their stock prices driven by AI-related losses would inflict pain across a far broader spectrum of investors.
This sentiment is echoed by other financial observers. Torsten Sløk, chief economist at Apollo, has noted that the top 10 companies in the S&P 500 today exhibit greater overvaluation compared to their counterparts during the 1990s tech bubble, suggesting that a potential bust could be even more severe. Concerns also swirl around unsustainable valuation premiums currently assigned to market-leading AI stocks, with some analysts predicting a possible AI bubble burst in 2025. Projections indicate that global AI investment could reach $200 billion by 2025, driven by hardware and software spending, potentially leading to market saturation and a subsequent correction. Indeed, some experts, including C3.ai CEO Tom Siebel, have openly stated there is “absolutely a bubble” in the AI market.
The rapid acceleration of AI adoption and investment is undeniable. Companies like Nvidia have seen their revenues quintuple and profits increase tenfold since 2022, fueled by insatiable demand for their AI-accelerating GPUs. AI-related investment has become a significant driver of economic growth in 2025, in some instances contributing more to growth than consumer spending, effectively acting as a “private sector stimulus program.” This immense capital flow and technological advancement are indeed transformative. However, the market’s current price-to-earnings ratios, while high, are not always “astronomical” across the board, and the combined valuation of major AI labs like OpenAI, xAI, and Anthropic remains less than Nvidia’s individual valuation.
Despite the genuine innovation and economic potential, the core of Gordon’s warning remains pertinent: the sheer scale of investment and the broad public exposure to these highly valued AI companies mean that any significant market correction could lead to unprecedented investor losses. While the speed of innovation and the established nature of some AI leaders differentiate this era from the dot-com bust, the underlying risk of overvaluation in a sector still defining its long-term profitability and broad economic impact looms large.