Jack Selby, founder of venture firm AZ-VC and longtime director of Peter Thiel’s family office, says the current boom in artificial intelligence may be the biggest bubble in private tech yet. He noted that billions have flowed into startups chasing the next big product, but many of these firms have yet to prove they can make money.
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Selby explained that consumers are paying very little for AI services, often far below the cost of running them. At some point, he said, companies will need to raise prices and add margin. When that moment comes, many startups will struggle to keep up. He warned that “tens if not hundreds of billions of investor dollars” could be lost once valuations come back down.
Echoes of the Dot-Com Boom
Selby compared today’s wave of AI investment to the late 1990s internet bubble. Back then, stock prices soared for firms with little to no revenue. When the market turned, the Nasdaq dropped nearly 80% between March 2000 and October 2002. He said the same pattern could play out for AI firms, with many companies unable to survive the correction.
Selby’s comments do not come in a void. Other voices in tech are also raising alarms. OpenAI CEO Sam Altman recently told The Verge that the AI boom reminds him of the dot-com cycle. He said investors are too eager to back startups with little more than three people and an idea. Altman also warned that many of these firms may not survive once the focus shifts to profit and steady growth.
At the same time, Altman believes that the overall impact of AI will be a “huge net win” for the economy. He expects a mix of winners and losers, with some investors losing large sums while others see significant gains. His advice is to stay focused on fundamentals.
Growing List of Caution Flags
Alibaba (BABA) co-founder Joe Tsai, Bridgewater Associates founder Ray Dalio, and Apollo Global Management (APO) chief economist Torsten Slok have all raised similar concerns. Slok wrote that valuations in the largest S&P 500 (SPY) firms tied to AI may already rival or even exceed the internet bubble.
Moreover, earlier in the year, research from the Massachusetts Institute of Technology showed that 95% of corporate projects in generative AI have failed to make a profit. This adds to the worry that many firms in the sector may not have workable business models yet. Investors now face a market that is both promising and risky. History shows that hype cycles often lead to heavy losses before the true winners emerge. The current AI boom may prove no different.
Using TipRanks’ Comparison Tool, we lined up notable AI stocks to give investors a clear view of each company and the broader industry.
