Archive · 11 Oct 2026
AI Bubble May Deflate Slowly Rather Than Burst
Bertie reads several articles predicting that the AI boom could crash.
They say investors may not earn enough, people may oppose new data centres, or higher interest rates may make risky projects harder to fund.
Bertie thinks this means he should bet against AI companies.
His friend Vik points out that the stock market is still reaching record highs.
He also says some major AI-related companies are valued less richly than they were before.
Vik thinks the excitement may fade gradually instead of ending in one big crash.
He compares it to party balloons that slowly go flat rather than popping.
The article leaves open how the AI market will develop.
An investor named Bertie reads arguments that AI investment could falter because of poor returns, public opposition to data centres, or higher interest rates.
His friend Vik agrees these risks are real but notes that markets have continued to rise despite them.
The article says the Nasdaq and S&P 500 are at new all-time highs.
Vik cites lower price-to-earnings multiples for Amazon, Microsoft and Nvidia than a year or two earlier.
Vik argues that the AI boom may gradually lose market value as investors pay lower multiples, rather than collapse suddenly.
- Who
- Bertie, an old-school investor, and his friend Vik, a Wall Street research executive leading his firm’s India office.
- What
- They discuss whether the AI investment boom is about to crash or may instead deflate gradually.
- When
- The conversation takes place during a recent meeting; no specific date is given.
- Where
- The Fat Cats Club, including its library and cafeteria.
- Why
- Bertie is considering betting against AI investments after reading arguments that investment, public and interest-rate pressures could end the boom; Vik argues a sudden crash is not inevitable.
Why the AI bubble could burst
Why it may deflate instead
Investment returns and market outcome
Why the AI bubble could burst
Heavy investment chasing AI could produce poor returns, stall investment and bring down assets lifted by the boom.
Why it may deflate instead
Vik says markets can gradually assign lower multiples to earnings; a bubble does not necessarily end in a sudden collapse.
Public and policy pressure
Why the AI bubble could burst
The article describes an argument that opposition to data centres over electricity costs and job-loss concerns could lead politicians to curb investment.
Why it may deflate instead
Vik notes that markets have continued to rise despite such concerns, and presents gradual repricing as a possible path.
Interest rates and liquidity
Why the AI bubble could burst
A macro commentator cited in the article argues higher rates, bond yields and tighter liquidity could end AI-related mal-investment.
Why it may deflate instead
Vik’s account emphasizes that several AI-linked companies already trade at lower earnings multiples than a year or two earlier, consistent with a gradual adjustment.
- Market indices
- The article says the Nasdaq and S&P 500 are at new all-time highs.
- Amazon valuation cited
- Its price-to-earnings multiple is described as falling from 28 times to 20.
- Microsoft valuation cited
- Its price-to-earnings multiple is described as falling from 30 times to 25.
- Nvidia valuation cited
- Its price-to-earnings multiple is described as falling from 35 times to 17.
- Potential pressures discussed
- Low investment returns, opposition to data centres, rising interest rates and bond yields, and tightening liquidity.
- Vik’s central argument
- The AI boom could deflate gradually as investors assign lower multiples to earnings, rather than burst suddenly.