A.I. hype is starting to give dot-com bubble
We're in the midst of an A.I. frenzy, and it's as hyped as any tech cycle in the past 20 years. But I think it could be the most similar to the late '90 dot-com era, which was marked by sky-high valuations and an unrelenting optimism about the internet’s potential to "change everything." (Sound familiar?)
Consider these comparisons:
In the 90s, investors threw money at any company with a ".com" in its name, without fully understanding the underlying business models or how sustainable they were. Now we've seen startups (and established companies) rushing to add "A.I." to their products in order to skyrocket in value, with massive funding rounds and inflated valuations. But how many of these are they just riding another hype wave vs. delivering real differentiated value?
When the bubble burst in 2000, many tech companies vanished, but the internet itself ultimately revolutionized [checks notes] everything. Similarly, I believe the real value behind A.I. is on a similar trajectory. The tools being developed today are already starting to lose their shine as new models only add incremental value*, but that doesn't take away from how A.I. will truly impact industries over time—and how companies should prepare for an enormously disruptive impact.
The big wild card to me is what the Federal Reserve will do with interest rates. During the late 90s, the U.S. economy was experiencing robust growth, with low inflation and a booming stock market. Chair Greenspan kept interest rates relatively low for much of the decade, but raised interest rates starting in mid-1999 to temper the growing economy and prevent overheating—eventually getting to 6.5% by 2000, which many credit with "bursting" the dot-com bubble. Today’s interest rates are just coming down, which has led to a more cautious investment environment overall, and the Fed has already signaled a need to slow rate cuts due to lingering inflationary pressures. Will the economy still be too hot overall for a real A.I. bubble to form?
I posted something similar on LinkedIn, and polled people about whether or not they believed this to be a dot-com style bubble, a typical hype cycle, or something different. Check out the results.