Is the AI bubble going to burst?

Everyone keeps talking about an AI bubble. Is it going to burst, and should I be worried about my investments?

Is the AI bubble about to burst? J.P. Morgan’s Karen Ward says the honest answer is “I don’t know”.

It’s the question everyone wants answered: is AI a bubble, and is it about to burst? When Holly put it to Karen Ward from J.P. Morgan, the answer was refreshingly candid.

“I’m going to give you the really disappointing answer,” she said. “I don’t know.”

That’s not something you often hear from people in finance. But for Karen, admitting uncertainty is a strength, not a weakness. “Sometimes ‘I don’t know’ is the most important answer I can give myself, because it gives me conviction over where to deploy my money.”

Will AI actually change the world?

The problem, she explains, is that it’s simply too early to know how AI will change the world, if it does at all.

So far, the story has been driven by the tech giants, mostly listed in the US, building the technology, the data centres and the chips that power it all. Their message is that AI will transform the world and help every business boost its profits.

Now we’ve reached the testing phase. Businesses and consumers alike are trying these tools out to see whether they live up to the hype. At J.P. Morgan, Karen and her colleagues are experimenting with AI to see how it can help them serve clients and work more productively.

The big question for consumers is a simple one: will you actually pay for an AI app, or will you just find a free one instead?

Are AI and tech stocks overvalued?

Once we know how useful AI really is, and how much people will pay for it, we’ll get a clearer picture of what these companies are worth and what their earnings might look like over the next five to 10 years.

The upside could be significant. “We might find these companies deliver 20% earnings growth for the next decade, in which case, honestly, they look quite cheap right now,” she says.

But there’s another possibility. In a couple of years, we might discover that most of us have just been using AI for fun.

Her point is clear: we simply don’t know yet how transformative AI will be.