A Market Bubble Led by AI

[Celerity]

Artificial intelligence may not be intelligent enough to accurately value AI companies.

https://prospect.org/2026/06/09/market-bubble-led-by-ai/



The stock market suffered a big lurch last Friday, leading some to wonder if it’s on the verge of a more serious collapse. The two main factors were second thoughts about the astronomical valuations of tech companies, and rising inflation. The tech-heavy NASDAQ fell by about 4.2 percent, dragged down by losses of over 10 percent in major chipmakers, including Micron, Marvell, Intel, AMD, Qualcomm, and Arm Holdings. Nvidia was down more than 6 percent and Broadcom almost 8 percent. The declines erased about $1.2 trillion in market value in a single day. The NASDAQ made back less than a fourth of its Friday losses on Monday. The soaring stock market has been one of the paradoxes of the Trump economy. The usual explanation is that while consumers feel squeezed by rising inflation, market valuations are high because of the AI revolution and the profits of other tech platform monopolies such as Amazon and Google, as well as those of semiconductor producers.

Friday’s sell-off came against a staggering run-up in the prices of chip manufacturers. Intel stock has increased by 453 percent in the past year. AMD stock is up 303 percent. Both are heavily reliant on the pending AI infrastructure build-out that projects spending in the trillions of dollars. On Friday, markets were also whipsawed by a whole other collision of good news and bad news. The Labor Department reported better-than-expected job growth, of 172,000 in May. The bond market, fearing more inflation, promptly bid up rates on Treasury securities. Both factors increased the chances that the Fed will raise interest rates, which is always bad news for the stock market. Underlying this familiar set of interest-rate dynamics was increasing concern about a possible AI bubble. An absurdly high proportion of the stock market is being driven by AI valuations and by stock prices in other tech platform companies reliant on the AI boom.

The two largest AI companies, OpenAI and Anthropic, are privately held, but both plan to go public sometime in the next several months. The financial press reports that each IPO is likely to be valued at about a trillion dollars. Neither company has formally filed with the SEC, but the OpenAI filing could come any day. OpenAI was valued at $852 billion in a recent private funding round, according to The Wall Street Journal. One other company in the trillion-dollar club has already launched its IPO. Elon Musk’s SpaceX said in a filing it plans to sell 555,555,555 shares at $135 apiece. That would give it a valuation of around $1.77 trillion, roughly doubling the company’s valuation from six months ago. In 2020, SpaceX was valued at just $36 billion. Its entire profitability is based on monopoly sweetheart contracts with the government. SpaceX trading on the NASDAQ is set to begin on Friday in the largest IPO ever. Assuming that OpenAI and Anthropic move forward with plans for their own IPOs, that adds up to about $4 trillion in just three companies, a massive amount of capital.

ARTIFICIAL INTELLIGENCE MAY WELL LIVE UP to its hype as a transformative technology, but still be wildly overvalued financially right now. A close comparison is the dot-com stock bubble and crash of 2000. In the late 1990s, the promise of new technology tied to the internet led venture capitalists and other investors to pour money into tech startups. The burn rate of many of these companies far exceeded their profits. Investors were betting on future earnings, and bid up stock values. The money was made from stock plays, not from actual profits. The tech-heavy NASDAQ nearly tripled in value between 1997 and early 2000. When several startups failed, and the Fed began raising interest rates in 1999, the herd instinct reversed and investors began selling. In the crash that followed, the NASDAQ lost 78 percent of its value between March 2000 and October 2002. The crash did not immediately collapse the larger economy. That would come later, with the housing bubble collapse in 2008. Some tech companies, with viable business models, recovered and were soon bigger than ever, such as Amazon, Google, and eBay.

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