Foreign Policy Live Is the AI Economy a Bubble?
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Oct 30, 2025 Jared Bernstein, former chair of the Council of Economic Advisers, discusses whether the AI boom is a bubble. He explains the signs of overvaluation in the AI sector, highlighting risky circular financing and the mismatch between investment and revenue. Bernstein also examines the potential economic fallout if the bubble bursts, noting that wealthy investors may feel the most impact. Furthermore, he emphasizes the need for regulatory measures to mitigate financial risks associated with AI. His insights offer a thought-provoking look at the future of the AI economy.
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What Defines A Bubble
- A bubble forms when investment outpaces the ability to earn reasonable returns, prompting investors to pull out.
- That deflation of high valuations is the core mechanism of a financial bubble.
Valuations Far Exceed Revenues
- AI valuations are extremely high compared with current earnings, signaling bubbly characteristics.
- Example: OpenAI's proposed trillion-dollar investment dwarfs its roughly $13–15 billion revenue.
A Startup Valued Before A Product
- Mira Murati's startup Thinking Machines was valued at $10 billion before offering a product, raising $2 billion quickly.
- This exemplifies rapid speculative funding detached from concrete business plans.