The Ultimate Bubble: Why Your Organisation Should Prepare for the AI Crash Now
- Tax the Robots
- Oct 28
- 3 min read
Updated: Oct 29
The technological world is currently captivated by a story of limitless growth. Billions of pounds are flooding into Artificial Intelligence, catapulting valuations to dizzying, often irrational, heights. Yet, for those of us tracking market cycles, the signals are clear: this isn't just a bubble; according to serious market analysts, it may be the ultimate bubble—a perfect storm of speculation engineered for a monumental correction.
We want to raise awareness of the Wired article https://www.wired.com/story/ai-bubble-will-burst/ and it's importance as one of many that people, investors and organisations need to take notice of...
The reality is that every organisation that has pivoted to AI, adopted its services, or invested in its future is now intrinsically exposed to this financial fragility. The question is no longer if the AI market will burst, but when, and whether your business is optimised to survive the fallout.
The 8/8 Score: Applying the Academic Bubble Test
To understand the severity of the situation, we must look beyond rampant speculation to a rigorous, battle-tested framework. Economists Brent Goldfarb and David A. Kirsch, who wrote the book Bubbles and Crashes, developed a four-factor test to determine the likelihood of a major tech bubble, ranked on a scale of 0 to 8. The AI market hits every note, scoring a perfect 8/8.
1. Uncertainty: The Unknowable Business Model (Check)
Uncertainty is the essential ingredient of a tech bubble—the struggle to figure out what the technology can do and how it will be profitably monetised.
Cost vs. Revenue: Major AI players are burning through vast sums on computation and infrastructure. Inference costs remain so high that many companies still lose money on nearly every user query. The long-term viability of their enterprise programmes is highly questionable.
The Profit Gap: The most startling evidence is the lack of return. A recent MIT study found that 95% of firms that adopted generative AI did not profit from the technology at all. The claims of transformative efficiency are failing to materialise across the board.
Historical Parallel: The situation mirrors the broadcast radio bubble of the 1920s. Everyone knew radio was powerful, but no one knew how to charge for it, leading to a spectacular 97% loss in value during the crash.
2. Pure Plays: The Concentrated Risk (Check)
A pure-play company is one whose entire fate is intrinsically bound to the success of a single innovation. They become the single point of failure in a crash.
Systemic Exposure: The AI market is defined by pure plays. Nvidia staked its future on AI chips, becoming its generation's “RCA.” Other firms like OpenAI and CoreWeave attract massive, concentrated private investment.
Interdependency: The most worrying factor is the tangled web of dependencies. OpenAI relies on Nvidia chips; Microsoft's AI strategy relies on OpenAI. A sharp correction in one core pure-play company could trigger a cascading failure across the entire industry, magnifying the speed and severity of the collapse.
3. Novice Investors: The Exposure of Public Wealth (Check)
While institutional funds fuel the initial boom, bubbles require mass participation. Today, the ease of retail trading means that the speculation is no longer confined to wealthy venture capitalists; it's creeping into the public markets.
Retail Mania: Hordes of novice investors are pouring savings into AI-adjacent stocks. Nvidia was the most-bought equity by retail traders in 2024. This democratisation of high-risk investment means that a crash will bleed into pensions and retirement funds, exacerbating a broader economic shock, much like the crashes of 1929 and 2000.
4. Coordination Narratives: The 'Inevitability' Trap (Check)
A bubble needs a powerful, compelling story to drown out caution. The narrative of inevitability is the AI industry's greatest asset.
Infinite Promise: AI leaders push the idea of Artificial General Intelligence (AGI)—that AI will soon solve every problem, automate every job, and create unimaginable wealth. This is an unknowable promise that appeals to investors of every stripe, transforming uncertainty into opportunity.
Dangerous Scale: The sheer scope of AI's promise elevates its bubbledom beyond historical precedent. Like the aviation craze before the 1929 crash, the narrative has been seized upon by pure plays and has convinced the market to vastly overestimate the speed of viability and profitability.
The Wake-Up Call for Commercial Leaders
The perfect 8/8 score means the likelihood of a severe correction is statistically high. For commercial organisations, this isn't an investment story; it's a fundamental operational risk. When the bubble bursts, funding dries up, high-cost vendors vanish, and reliance on unproven technology becomes a liability. Preparing for this is not pessimism—it is optimised risk management.
Here are a couple more useful links to trusted sources.
And a book for reference
