AI: Are we in another dot-com bubble?

🌈 Abstract

The article discusses the similarities and differences between the current AI cycle and the internet/telecom cycle of the late 1990s, and analyzes whether the AI industry is in a bubble or not.

🙋 Q&A

[01] Similarities and Differences Between the AI and Internet/Telecom Cycles

1. What are the similarities between the current AI cycle and the internet/telecom cycle of the late 1990s?

• Both have similar ecosystem structures, with infrastructure, enablement, and application companies
• Both are occurring in the middle of an equity bull market
• Both require significant investment in infrastructure

2. What are the differences between the two cycles?

• AI applications have generated significantly higher revenue compared to internet/telecom companies in their early stages
• The current economic environment is less favorable compared to the late 1990s
• The sources of financing are different, with AI being more equity-driven compared to the debt-fueled internet/telecom cycle

3. Based on the comparison, is there a higher or lower likelihood that we are in an AI bubble right now?

• The analysis suggests a lower likelihood of being in an AI bubble compared to the internet/telecom cycle, due to the more sustainable business models and reasonable valuations of AI companies.

[02] Lessons from the Dot-Com Bubble

1. What are the key lessons that can be learned from the dot-com bubble?

• Infrastructure buildouts take time, often a decade or more to reach peak capacity
• First-mover advantage can be a disadvantage as the market matures
• Winner-take-all dynamics are likely to emerge in both the internet/telecom and AI cycles
• M&A consolidation typically happens towards the end of the cycle
• Boom to bust can happen quickly, with sharp reversals in confidence
• Factors beyond just the technology, such as the macroeconomy, regulation, and geopolitics, are equally important

2. How does the potential for overinvestment in AI compare to the internet/telecom cycle?

• Like the internet/telecom cycle, there will likely be overinvestment in AI infrastructure, but the excess capacity can enable the next wave of transformative applications.