Is the US AI Bubble Set to Burst, Mirroring the 2008 Real Estate Crisis?
Is the US in the middle of an Artificial Intelligence bubble similar to the 2008 real estate crash? This is the question being asked by everyone from Wall Street to Silicon Valley. Michael Burry, who anticipated the 2008 mortgage debacle and gained from it, is now shorting AI-related stocks. Why? In his opinion, “The valuations of AI firms are very unreasonable right now,” which is a cautionary statement that closely resembles his previous playbook.
On the other hand, Peter Thiel, another seasoned investor, has recently sold a major portion of his Nvidia shares. Since Nvidia is considered the “engine” for AI computing power, Thiel turning down the brilliant future of AI is a loud signal that increasing numbers of people are becoming skeptical of the promise of AI.
What is an AI bubble exactly? Recall the year 2008 when real estate prices skyrocketed, largely due to risky loans and overconfidence. The bursting of the bubble led to a recession that took down the entire economy with it. The valuations of AI-related firms (which are mostly private) have skyrocketed to multimillion or multibillion-dollar figures within a handful of years, with some going beyond $150 billion for companies like OpenAI and Anthropic.
This rapid increase in prices without corresponding profits or verified business models has caused a lot of people to question whether investors are focusing on hype instead of fundamentals. They are worried that the size of this bubble is even larger than that of the 2008 crisis and hence the consequences could be far more widespread and severe.
However, is this really a bubble or is it just a freak of market excitement on a revolutionary technology? AI, unlike the subprime crisis, is not a hoax and has genuine potential to drive the economy. The banks are saying that AI could add 15% to the US GDP by 2030 while at the same time increasing the productivity of the country by 1.5%. AI would cut across industries such as healthcare and finance, among others.
Nevertheless, the risk of such a scenario is still very much around, especially if the stock market is overheated with valuations far exceeding the expected earnings. The consequence of the collapse in the US stock market could therefore be disastrous if it happens, given how the Indian and US tech economies have become intertwined over the years.
How is it related to Trump and Elon Musk? Trump’s AI policy was politically motivated. Referring to 2025, at the peak of the debates on AI’s role, Trump signed executive orders to facilitate AI innovation and at the very same time prohibited what he termed as “woke” or politically biased AI systems from being used by the government. He presented AI as a battleground of the culture war whereby he intended to direct AI to the political side of “truth and fairness” among other things. The Trump-era AI push was highly polarizing; as a result, it attracted both acclaim and criticism.
Conflicted with this story is the battle between Trump and Elon Musk on AI projects. Musk criticized the Trump-supported AI idea worth $500 billion in an open letter where he doubted the government’s approach and the project’s feasibility. In response, Trump accused Musk of jealousy and that his attack was mostly personal, particularly towards Sam Altman, the co-founder of OpenAI (a project-related entity). The discord between the two public figures and how it magnified not only the tech world’s tension regarding who should lead the AI revolution but also how AI governance should be was a major takeaway from the confrontation.
Does that mean this AI bubble is going to burst? The limited factors being cautious big-name investors like Burry and Thiel, as well as growing mistrust of experts, are all indications that things aren’t that great. This, however, does not mean that the AI revolution will end up being a failure since the technology is still very much a game changer for both the economy and society. The people who hold the keys to the future, i.e., investors, regulators, and companies, merely have to figure out how to steer through this uncharted territory. If they mishandle it, there will be a major crash of the US economy, the ripple effect of which could be felt by other parts of the world – India included.
Are Indian markets prepared for the fallout? The global ripple effect of a US AI crash could lead to corrections in Indian stocks, especially tech-heavy indices. Indian investors need to be extremely vigilant as to what unfolds here because AI is revolutionizing the market globally in different ways.
This is a live drama with twists and turns of characters and events – on one side, empathizing with and on the other, betting against AI are major investment players; there is a political drama between Trump and Musk. Finally, there is a technology that not only heralds a new era but is also capable of causing market chaos. All the news agencies and experts keep morphing, offer lessons on hype, innovation, and the thin line between tech dreams and market realities. Will AI be the next big boom or the next big bust? The world is watching.
