Is AI the Next Big Bubble?

Introduction to the AI Bubble Debate

The surge of multi-billion-dollar investments in AI has sparked a growing debate over whether the industry is heading for a bubble similar to the dot-com boom. Investors are watching closely for signs that enthusiasm might be fading or that the heavy spending on infrastructure and chips is failing to deliver expected returns. A recent survey by BofA Global Research found that 54% of fund managers believe AI stocks are already in bubble territory, while 38% disagree.

Echoes of the Dot-Com Era

Despite the optimism surrounding AI, skeptics remain unconvinced of its real-world impact. Some even call it a bluff or a bubble waiting to burst. Speaking during Cisco’s recent Virtual Media Roundtable — AI Readiness Index 2025: Readiness Leads to Value, Ben Dawson, Senior Vice President and President for Asia Pacific, Japan, and Greater China (APJC), compared the current wave of AI hype to the early days of the internet. He said technological shifts of this scale often follow a familiar pattern — early excitement, heavy investment, and eventual market correction before long-term value takes hold.

Dawson noted that while some AI projects or business models may not last, the overall transformation is real and lasting. He added that, much like the internet revolution, AI will permanently reshape business and society, and organisations that ignore it do so at their own risk.

The Role of Governments and Global Policy

Public policy is also shaping how the AI cycle unfolds — and how governments might cushion the risks of a potential AI bubble. In the US, government involvement has helped define past technology eras — often through incentives and early investments that encourage private innovation. The same pattern is now visible in AI. Both the Trump and Biden administrations have positioned AI as a matter of economic strength and national security, sending a clear message that speed matters.

China has taken a state-led approach, directing capital toward local AI firms to reduce reliance on US technology. In Europe, efforts have focused more on regulation, though fears of overregulation have led to new programs — such as the AI Continent Action Plan and a €1 billion Apply AI fund — to boost adoption and competitiveness.

Market Warnings Over a Possible AI Bubble

The Bank of England recently warned that markets could suffer a sharp correction if confidence in AI falters, calling the potential impact on the UK’s financial system “material.” The warning reflects growing caution among policymakers about how quickly AI-related valuations have climbed.

This concern is shared by some investors and economists who believe the rapid pace of AI spending may outstrip short-term returns. Others, however, argue that building AI infrastructure now is essential groundwork for future innovation.

Building Long-Term AI Infrastructure Amid Bubble Fears

When asked whether companies are worried about AI infrastructure costs and energy demand, Simon Miceli, Managing Director of Cloud and AI Infrastructure for APJC at Cisco, said he views the issue from the opposite angle. Rather than fearing overcapacity, he said what’s happening now is a large-scale buildout to support the industrialisation of AI. The question, he said, isn’t whether AI demand exists today, but whether the world is preparing fast enough for what’s coming.

Miceli acknowledged that some correction in the AI market is likely, but he believes the long-term need for AI computing power justifies current investment levels. “There’s a race to develop AI and build the capability behind it,” he said, adding that demand will eventually meet supply as applications mature.