AI in an ‘Industrial Bubble,’ Poised to Benefit Society

TURIN, Italy – Artificial intelligence is operating within an “industrial bubble,” according to Amazon Founder Jeff Bezos, but he emphasized that the underlying technology is “real” and poised to deliver significant societal benefits. Bezos’s comments, made at Italian Tech Week in Turin, come amid growing debate about the sustainability of valuations in the AI sector.

The term “bubble” typically refers to a period when asset prices, particularly stocks, become detached from the fundamental financial performance of the companies they represent. History is replete with examples, most notably the dot-com crash of 2000, which wiped out billions in market capitalization as internet companies failed to live up to inflated expectations.

During a fireside chat with Exor CEO John Elkann, Bezos addressed the question directly: “This is a kind of industrial bubble,” he stated, drawing parallels to previous periods of speculative investment.

Bezos outlined the defining characteristics of such bubbles, highlighting the disconnect between stock prices and underlying business fundamentals. He also noted that the enthusiasm surrounding AI today mimics the exuberance seen during past bubble phases.

“The second thing that happens is that people get very excited like they are today about artificial intelligence,” Bezos added.

He elaborated that during a bubble, both promising and dubious ventures attract funding, making it challenging for investors to differentiate between sound investments and speculative gambles. “The good ideas and the bad ideas. And investors have a hard time in the middle of this excitement, distinguishing between the good ideas and the bad ideas. And that’s also probably happening today,” Bezos observed.

However, Bezos tempered his cautionary words with an optimistic perspective. “But that doesn’t mean anything that is happening isn’t real. AI is real, and it is going to change every industry.” He suggested that even bubbles can ultimately be beneficial, citing the biotech boom of the 1990s, which, despite numerous company failures, fostered scientific breakthroughs that led to life-saving drugs.

Bezos illustrated the current investment climate with the example of a small company, just six people, garnering billions in funding. This represents “very unusual behavior,” indicative of frothy market conditions, though he refrained from naming the specific company.

“The [bubbles] that are industrial are not nearly as bad, it can even be good, because when the dust settles and you see who are the winners, societies benefits from those inventions,” Bezos said.

“That is what is going to happen here too. This is real, the benefits to society from AI are going to be gigantic.” He emphasized the transformative potential of AI across various sectors, reinforcing his belief in its long-term value.

Bezos joins a growing chorus of business leaders voicing concerns about an AI bubble. OpenAI CEO Sam Altman has reportedly expressed similar sentiments, and a number of prominent investors have also questioned the current valuations in the sector.

Goldman Sachs CEO David Solomon on Friday expressed some concerns about stock market levels amid the AI hype.

“When [investors are] excited, they tend to think about the good things that can go right, and they diminish the things you should be skeptical about that can go wrong … There will be a reset, there will be a check at some point, there will be a drawdown,” Solomon said at Italian Tech Week. “The extent of that will depend on how long this [bull run] goes.”

Karim Moussalem, chief investment officer of equities at Selwood Asset Management, said last week that the “AI trade is beginning to resemble one of the great speculative manias of market history.”