AI Bubble Could Trigger Bigger Crash Than Dot-Com Bust

The Echoes of History: Are We Facing an AI-driven Financial Storm?

Setting foot in the world of modern finance feels an awful lot like deja vu these days. If you were anywhere near the market at the close of the 90s, you’ll remember the wild, frenzied optimism that fuelled the internet startup gold rush. I’ve chatted with colleagues who still wince at the memory, and sometimes you catch the same flicker of doubt when talk turns to the current AI extravaganza. These days, you can hardly open a business newspaper or flick through your newsfeed without seeing headlines touting the promise—and, tellingly, the potential peril—of artificial intelligence.

Beneath all the accolades and billion-dollar valuations, I’ve started to notice a nagging, familiar undertone: anxiety. The kind that whispers, “this all sounds a bit too good to be true.”

The Scale of Overvaluation: Lessons from the Dot-Com Era

Back in the halcyon days of the late nineties, the world was smitten with the internet. Investors tripped over themselves trying to get in on the action, pumping staggering sums into companies that in hindsight had little more than a slick pitch deck and a vague business idea. I remember watching friends barely out of university transform from broke students into paper millionaires overnight—at least, until the music stopped in 2000.

As the dot-com bubble burst, fortunes evaporated. I still recall stories of companies with stratospheric stock prices one quarter, vanishing from the ticker entirely the next. And it wasn’t just the plucky startups: behemoths stumbled, too.

Now, sitting at my desk all these years later, I can’t shake the feeling that the AI surge may be walking the same tightrope, only higher up—and with even more at stake.

The friction comes from a single, glaring mismatch:

• Valuations are reaching for the sky, while genuine revenue growth often toddles far behind.
• A handful of superstar companies—think massive tech conglomerates—are masking lacklustre performance everywhere else.
• Speculative investment is warping expectations, with many pouring in simply for fear of missing out (the classic FOMO).

Many of my peers in finance admit, sometimes sheepishly, that their enthusiasm is tinged with a trace of worry. It’s easy to get swept up when everyone around you is chasing the next big thing. But, as the old saying goes, not all that glitters is gold.

Why the Current Bubble Might Dwarf the Dot-Com Crash

Torsten Sløk, chief economist at Apollo Global Management, has thrown his hat in the ring with a stark warning: today’s AI hype threatens to outstrip the dot-com bubble in scale and severity. That’s a chilling thought, but he’s certainly not the only one sounding the alarm.

This round, the capital involved is staggering. We’re talking trillions—yes, trillions—with the biggest slices gobbled up by the most recognisable players in the tech world. And while they may have genuine products and robust infrastructure, their stock prices seem to have lost touch with the underlying reality.

So what’s fuelling the fire?

• A near-mythical belief in AI’s power to transform everything, everywhere, all at once.
• A global, interlinked financial market where capital can flow—sometimes irrationally—at the twitch of an algorithm.
• A culture, especially online, of chasing trending narratives, sometimes with scant regard for commercial fundamentals.

It’s tempting to believe this time we’ve nailed it for good. History, though, has a wicked sense of humour. The fever-pitch excitement that surrounded Web 1.0 didn’t save thousands of companies from crashing and burning.

Spotting the Signs: Bubble Behavior in AI Markets

If you ever want to spot a bubble before it bursts, there are a few tell-tale signs. In my years of navigating the risky waters of tech investment, I’ve learned to watch for certain red flags:

• Escalating valuations unsupported by hard profit figures.
• A swelling chorus of “this is the future, how could it go wrong?”
• Newcomers attempting to capitalise on the trend, regardless of actual expertise or product readiness.
• Financial media stoking the flames, often recycling the same breathless predictions over and over.
• Rapid, sometimes frenzied, rounds of hiring—followed by equally dramatic layoffs at the faintest whiff of trouble.

Owning up, I’ve been seduced by that hype myself, watching “sure things” tumble mere months after looking unstoppable. It stings, but you learn to keep your wits about you.

AI Giants: The “Magnificent Few” Hold Up the Index

Look at any stock chart lately and you’ll notice that a few gargantuan firms—let’s call them the “Magnificent Few”—are shouldering most of the load. Their market capitalisations have soared, making investors feel richer and chief executives look like oracles.

From water cooler conversations to boardroom briefings, I keep hearing the same refrain: “You’d be mad to bet against them!” And yet, when you drill into the numbers, these titans often account for an outsized chunk of index growth. That covers up stagnation—or outright contraction—among hundreds of smaller and mid-sized competitors.

The result? It’s like a grand illusion stage-managed by just a few leading lights. And if even one of those stumbles, the whole house of cards could judder alarmingly.

AI’s Real-World Adoption: Glitzy Demo vs. Revenue Reality

The magic of AI feels enticing, especially when you watch a polished product demo or skim headlines about record-breaking breakthroughs. But after years in business automation and data-driven marketing, I’ve noticed how tricky it is to turn all that noise into reliable, recurring income.

Some use cases—customer service bots, predictive marketing, smarter logistics—are already paying their way, no question. I build these automations daily for our clients, and the ROI is plain as day. Still, the lion’s share of AI startups haven’t translated promise into profit.

Here’s where the cracks start to show:

• Bombastic launches and viral demos, yet months later, customer churn quietly increases.
• Subscription models with exploding user numbers, but razor-thin or negative margins.
• Complex, opaque algorithms that most buyers can’t independently evaluate—they buy the story, not the substance.

That old chestnut springs to mind: “If you can’t explain it simply, you don’t understand it well enough.” And I’ve witnessed this firsthand, talking to founders who speak in riddles around monetisation, hoping enthusiasm will carry the day.

When FOMO Outpaces Fundamentals

So many investors are swept up in what is effectively a stampede. They see their peers making paper gains and figure, “Why not me?” Before long, the price of entry gets bid up to silly heights, simply because no-one wants to be left behind.

I know acquaintances who have ploughed everything into AI shares—some with a healthy, diversified portfolio, but plenty chasing a single “big win.” More than a few have already walked back their enthusiasm, quietly trimming positions before the curtain falls. The temptation is always real to hold on “just a little bit longer,” hoping this time really is different.

Drawing Parallels: What the Dot-Com Crash Taught Us

There’s a Polish saying that fits here: “no rose without thorns.” If you’re lucky enough to have invested before a surge, it can feel like nothing else matters. But roses fade, and thorns prick when you least expect it.

During the dot-com collapse, I watched as people who once feasted at lavish launch parties for pie-in-the-sky startups were soon scrambling to salvage even a fraction of their investment. The proponents of “growth at any cost” found themselves back in the job market. The line between visionary and charlatan blurred in those chaotic months.

The most striking part? Out of the flood of companies, only a few survived to tell the tale. The rest folded, or were quietly acquired by the giants for pennies on the dollar.

Winners and Losers: The Shape of a Post-Bubble Market

When the air goes out, markets look for safety. That sparks a wave of shakeouts:

• Mergers and takeovers, as resilient firms swallow up wounded rivals.
• Bankruptcies, often swift and merciless, for those with weak fundamentals or an unconvincing business model.
• A return to sober, old-fashioned financial discipline.
• Entrepreneurs scrambling to pivot, or exit altogether, licking their wounds.

It’s not doom and gloom for everyone. The few companies with a real edge and measured, sustainable growth emerge much, much stronger. They’re the ones shaping the next era, forging ahead while their rivals disappear in the rear-view mirror.

Charting Your Course: How to Invest Wisely Amid the AI Craze

Let’s cut to the chase: AI isn’t going anywhere. But neither is risk. If you’re tempted by the heady thrill of doubling your money on the back of a relentless rally, I don’t blame you. I’ve felt that itch. But having seen bubbles come and go, I can’t stress enough the importance of slow, thoughtful decision-making.

Some practical steps I swear by:

• Diversify. Don’t shove your eggs in one basket—spread your exposure across sectors, regions, and company sizes.
• Dig into the numbers. Glossy investor decks and viral demos are great, but sustainable businesses show it on the balance sheet.
• Set a threshold for “pain”—decide in advance how much you’re willing to risk, and stick to it when the market jitters.
• Don’t let headlines dictate your entire strategy. Media hype is like a sugar rush: exhilarating, but rarely healthy in the long run.
• Talk it out. I lean on my own “kitchen cabinet” of trusted peers before making big moves, and you should too.

There’s nothing glamorous about prudent, incremental investing, but I’d take a gently rising tide over a violent rollercoaster ride any day. Patience rarely makes headlines, but it pays the rent.

Navigating the Noise: The Role of Business Automation and AI in Real Value Creation

In my line of work, I use automation tools like Make.com and n8n to help clients cut out busywork, streamline sales processes, and deliver faster value to their customers. These tools are gamechangers for productivity—when used in the right context, with prudent oversight.

Here’s the catch: not every business can snap its fingers and “AI-ify” away all its problems. I’ve had clients who thought an AI bolt-on would do the trick, only to realise you need:

• A clear understanding of your own data
• Healthy, scalable workflows
• A long-term vision for customer engagement
• Gritty, daily effort to turn ideas into lasting revenue

In short, real-world returns come from careful groundwork. That’s true in automation, in AI—and in investing, too.

The Psychology of Speculation: Why We’re Drawn to Bubbles

There’s something deliciously tempting about the idea of easy money. Bubbles tap into our deepest instincts: the need for excitement, the lure of belonging, even the quiet hope that maybe, just maybe, we’re cleverer than the crowd.

I’ve lost count of the conferences I’ve attended where someone, glass of prosecco in hand, declared the “old rules dead,” preaching that this new dawn would rewrite everything. It’s only after the crowd thins out—when prices start dropping and the whisper networks light up—that reality bites.

It boils down to three classic traps:

1. Recency bias: believing the good times will last just because they have, recently.
2. Fear of missing out (FOMO): jumping in late because your neighbour or mate at the pub is bragging about their 400% gains.
3. Groupthink: assuming if everyone else is on board, it must be safe.

Human nature hasn’t changed much since the tulip craze in 17th-century Holland, and it’s not likely to, even with cleverer algorithms.

Media, Influencers, and the Culture of Exaggeration

Part of what fuels bubbles is narrative. The roar of social media, the breathless tone of financial commentators, and the constant drip-feed of optimism conspire to blur the line between legitimate innovation and speculative frenzy.

I’ve seen posts touting “can’t-miss” AI stocks shoot up simply because they’re trending, not because the underlying company has delivered anything remotely sustainable. It’s the hype cycle on steroids.

You see threads, videos, podcasts—lots of razzle-dazzle, fast cuts, and promises of extraordinary returns. But the quiet truth is that most of the work behind these headlines is grind, not glamour.

Staying Grounded: Spotting Real Value Amid the Glitz

From my experience, these practical checks help keep me on track:

• Find leaders who talk about risk, not just reward. The steadiest hands in the market are those who admit what keeps them up at night.
• Scrutinise customer retention and churn. Flashy wins don’t matter if clients quietly slip away once the novelty fades.
• Trace the customer acquisition cost (CAC) and lifetime value (LTV) balance. Too much sizzle, not enough steak? Red flag!
• Beware crowded trades. If everyone’s piling in, there’s probably not much room left for profit.

A pinch of British cynicism sometimes does wonders, I’ll confess. Now and then, I even try to channel an inner Sherlock Holmes, sifting the signal from the noise. It won’t make you popular at parties, but it might save you a few sleepless nights—and a lot of cash.

Regulation, Risk, and the Long-Term View

All things considered, regulation tends to be painfully slow to catch up with technological leaps. I often feel as though we’re racing Formula 1 cars on a country lane—barely controlled, and never quite as safe as it looks.

When scandals do break, the consequences are messy. Regulation tightens, trust evaporates, and markets shudder. If you’re invested heavily in AI—especially those at the bleeding edge—keep a close eye on shifting political winds.

Still, over the long haul, genuine, responsible innovation wins out. That’s why, in the face of the current euphoria, I believe the best path forward rests on:

• Getting comfortable with ambiguity—knowing when to back off as well as when to double down.
• Building relationships with people who challenge your assumptions, not just flatter them.
• A willingness to walk away when the numbers no longer add up, no matter how compelling the narrative.

What Might the Next Five Years Hold?

Let’s not toss the baby out with the bathwater. Underneath the froth, AI is producing real-world gains—sometimes immense ones. In my own work, I’ve witnessed businesses increase productivity, capture new markets, and outflank better-known rivals through sharp, strategic use of automation. This is technology’s slow burn, not its firework display.

But history has taught me that market cycles are ruthless. Eventually, the hype and hope give way to hard lessons. New leaders emerge, having weathered the storm with patience and discipline. Those happy few shape the standard for the decade to come.

If I had to stick my neck out, I’d hazard three likely scenarios as the next chapter unfolds:

1. Mass consolidation: Only the AI firms with a genuine edge—deep expertise, sticky customers, strong balance sheets—will hang on. The rest will merge or vanish.
2. Reset on valuations: Stock prices will gradually return to more sensible ratios, bringing pain for latecomers but fresh opportunities for cautious contrarians.
3. Regulatory tightening: Data privacy, safety standards, and consumer protections will tighten the screws around AI deployment, making success even trickier for the unprepared.

My Final Thoughts: Steering Clear of Market Mania

I’ve been around long enough to spot the warning lights blinking on the dashboard. When nearly every conversation turns to how much you “could make” in AI, and even your taxi driver is touting his latest tech stock, the sensible move is to pause and take stock.

You don’t have to sit on the sidelines entirely. In fact, with careful research and a steady hand, there’s plenty of meaningful value to capture in the automation and AI space. But the truth, as ever, is less thrilling than the headlines suggest.

My best advice for navigating these wild waters?

• Think independently. Don’t let the herd carry you over a cliff.
• Be mindful of your motives. If you’re investing to follow a trend, ask whether you’d be equally keen if nobody else was talking about it.
• Expect volatility, but don’t let it knock you off balance.
• Celebrate small wins and avoid gambling with your future.
• Above all, play the long game. Most fortunes are built patiently, not at the tail end of a euphoric rally.

As the markets shake and judder, I hold close the words passed to me by an old mentor: “In investing, you make most of your money by sitting on your hands.” It’s not glamorous advice, but after seeing more than one bubble burst—sometimes from the inside—I believe it’s spot on.

Sticking to your wits, and the numbers, is wise. The AI revolution will keep rumbling forward long after the fireworks fade, but only those who keep a cool head will be left standing on solid ground.

Further Reading

• “The Madness of Crowds” by Charles Mackay – for a classic study in market manias
• “Flash Boys” by Michael Lewis – an inside look at modern algorithmic trading, for those curious about today’s market structure
• “Factfulness” by Hans Rosling – a good antidote to panic, rooting investment in clear-eyed analysis