AI Investment Surge: Boom or Bubble?

Boom or bubble: How long can the AI investment craze last?

San Francisco (United States) (AFP) - The staggering investments in artificial intelligence keep coming: Last week, AI chip giant Nvidia announced it would invest $100 billion to help OpenAI, the frontrunner in generative AI, build data centers. How are these enormous sums possible when the returns on investments, at least for now, pale in comparison? Huge investments AI-related spending is soaring worldwide, expected to reach approximately $1.5 trillion by 2025, according to US research firm Gartner, and over $2 trillion in 2026 -- nearly 2 percent of global GDP. Even though tangible returns fall short of the investments going in, the AI revolution appears unstoppable. "There's no doubt among investors that AI is the major breakthrough technology" -- on par with harnessing electricity, said Denis Barrier, head of investment fund Cathay Innovation. Silicon Valley's mindset "is more about seizing the opportunity" than worrying about any risks, he said. Geopolitical tensions are helping drive the frenzy, primarily to build massive data centers housing tens of thousands of expensive chips that require phenomenal electrical power and large-scale, energy-hungry cooling. From 2013 to 2024, private AI investment reached $470 billion in the United States -- nearly a quarter in the last year alone -- followed by superpower rival China's $119 billion, according to a Stanford University report. Just a handful of giants are on the receiving end, with OpenAI first in line. In March 2025, ChatGPT's parent company raised approximately $40 billion, bringing its estimated valuation to around $300 billion, according to analysts. 'Circular funding' OpenAI is now the world's most valuable company, surpassing SpaceX, worth $500 billion in a deal for employees to sell a limited number of shares. The company led by CEO Sam Altman sits at the center of an AI investment bonanza: It oversees the Stargate project, which has secured $400 billion of the $500 billion planned by 2029 for Texas data centers spanning an area the size of Manhattan. The White House-backed consortium includes Softbank, Oracle, Microsoft and Nvidia. Nvidia, which completed over 50 venture capital deals in 2024 according to PitchBook data, is often chided for practicing "circular funding" -- investing in startups that use the funds to buy its chips. Some analysts criticize this as bubble-fueling behavior. The OpenAI deal "will likely fuel those concerns," said Stacy Rasgon, a Bernstein Research analyst. In the first six months of 2025, OpenAI pulled in around $4.3 billion in revenue, specialist outlet The Information reported this week. Therefore, unlike Meta or Google with substantial cash reserves, OpenAI and competitors like Anthropic or Mistral must be creative in their search for funds to bridge the gap. For AI believers, an explosion in revenue is only a matter of time for a company whose ChatGPT assistant serves 700 million people -- reaching nearly 9 percent of humanity less than three years after launch. 'Up in smoke' Nothing is certain, however. Feeding AI's computing appetite will cost up to $500 billion annually in global data center investments through 2030, requiring $2 trillion in annual revenues to make the expenses viable, according to consulting firm Bain & Company. Even under optimistic assumptions, Bain estimates the AI industry faces an $800 billion deficit. OpenAI itself plans to spend over $100 billion by 2029 -- meaning turning a profit is still a ways off. On the energy front, AI's global computing footprint could reach 200 gigawatts by 2030 -- the annual equivalent of Brazil's electric consumption -- half of that in the United States. Despite the daunting figures, many analysts remain optimistic. "Even with concerns about a possible 'AI bubble'... we estimate the sector is in its 1996" moment during the internet boom, "absolutely not its 1999" before that bubble burst, said Dan Ives, a Wedbush Securities analyst. Long-term, "many dollars will go up in smoke, and there will be many losers, like during the internet bubble, but the internet remained," said the Silicon Valley investor.

AI startup valuations raise bubble fears as funding surges

SINGAPORE (Reuters) -Artificial intelligence startups are attracting record sums of venture capital, but some of the world's largest investors warned that early-stage valuations are starting to look frothy, senior investment executives said on Friday. "There's a little bit of a hype bubble going on in the early-stage venture space," said Bryan Yeo, group chief investment officer at Singapore sovereign wealth fund GIC, as part of a panel discussion at the Milken Institute Asia Summit 2025 in Singapore. "Any company startup with an AI label will be valued right up there at huge multiples of whatever the small revenue (is)," he said. "That might be fair for some companies and probably not for others." In the first quarter of 2025, AI startups raised $73.1 billion globally, accounting for 57.9% of all venture capital funding, according to PitchBook. The surge was driven by funding rounds like OpenAI's $40 billion capital raising, as investors raced to catch the AI wave. "Market expectations could be way ahead of what the technology could deliver," Yeo said. "We're seeing a major AI capex boom today. It is masking some of the potential weaknesses that might be going on in the economy." Todd Sisitsky, president of alternative asset manager TPG, said the fear of missing out is dangerous for investors, though he added that views were divided on whether the AI sector had formed a bubble. Some AI firms are hitting $100 million in revenue within months, he said, while others in early-stage ventures command valuations at between $400 million and $1.2 billion per employee. He said that was "breathtaking." (Reporting by Yantoultra Ngui; Editing by Thomas Derpinghaus.)