Summary of “WHAT IS AN AI BUBBLE?!” by The Diary Of A CEO

How an AI Bubble Could Burst

• Investors’ excitement drives up the value of an AI-related asset to $100.
• Its owner borrows $50 from a bank using the asset as collateral.
• If investors suddenly need cash and rush to sell, the asset’s price may fall to $25.
• The owner still owes $50, leaving them $25 underwater. They may be forced to sell, adding further downward pressure on prices.
• Falling asset values can spread through the economy: people have less money to spend, businesses earn less, and the economy may decline.

Why AI Investment Is Especially Uncertain

AI companies cannot reliably predict how much revenue their investments will generate. They face a difficult choice:

• Invest too little, and competitors may pull ahead.
• Invest heavily, despite not knowing whether the spending will pay off.

This uncertainty can encourage large investments while making the sector vulnerable to a sharp correction.