Are we in an AI bubble?

US investors’ torrid love affair with AI showed signs of slowing yesterday, following a pair of recent developments that cast doubt on the technology’s widely hyped potential.

Analysts say the poor performance for the tech-heavy Nasdaq (-0.7%) can be largely attributed to a new MIT report that found investments in AI have yet to pay off for nearly all companies that have adopted the technology.

• The report came on the heels of a recent interview with OpenAI CEO Sam Altman, in which he suggested investors may be caught in an AI bubble.

Breaking down the potential bubble

The MIT report—based on executive interviews, employee surveys, and an analysis of 300 public AI deployments—found that investments in AI haven’t seen much success thus far.

• “Just 5% of integrated AI pilots are extracting millions in value, while the vast majority remain stuck with no measurable impact,” the report said. Essentially, that means “95 per cent of organizations are getting zero return” from their AI usage.
• MIT researchers largely attribute these failures to corporate “learning gaps” and flawed integration within companies, rather than the AI models performing poorly.

The findings echo Altman’s earlier comments. At a dinner with reporters in San Francisco last week, the OpenAI CEO said he believes AI is “the most important thing to happen in a very long time,” but that people have become overexcited and created a bubble fueled by relentless hype.

• He likened it to the dot-com era, when early internet companies stoked massive investor enthusiasm in the late 1990s…but then failed to generate revenue or profits, causing the Nasdaq to lose ~80% of its value from March 2000 to October 2002.

Big picture: VC funding for internet startups surged from ~$6 billion to $30+ billion between 1995 and 2000, the height of the dot-com era, with an estimated 39% of all US venture-capital investment directed toward internet companies.

In Q1 2025, AI startups accounted for 71% of all US VC activity, or ~$57 billion. That figure is almost exactly equivalent to having $30 billion in 2000, according to the Labor Department’s CPI Inflation Calculator.