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What Does AI Have to Say About the AI Bubble?

Here are the most recent price-to-earnings and market cap numbers:

What Does AI Tell Us About the AI Bubble?

I know I have been screaming about an AI bubble for some time, but I also do think that the tech can do useful things. In that sense, the tech bubble of the ‘90s is a good analogy. The Internet has had a huge impact on the economy and our lives, but the price of most tech stocks in the late 1990s made no sense. To my view, the same story is likely to apply to AI.

To show my appreciation for AI (and also out of laziness), I decided to ask it what it thinks about the bubble. I gave three leading AI systems the following prompt.

“If a pension fund manager knows there is an AI bubble, but they also know they will suffer no career consequences if the bubble bursts and costs the fund a large share of its assets, how will they manage the fund’s portfolio?”

Here’s what they had to say. (The answers are all literally verbatim. I just cut and pasted.)

A pension fund manager in this situation will continue to buy AI stocks and ride the market wave to capture short-term gains, rather than trying to avoid the crash.

This behavior happens because of standard financial incentives and psychological safety. Here is how and why they will manage the portfolio this way:

Buy popular assets: They will overweight their portfolio with leading AI companies, chips, and tech giants. Ignore high prices: They will ignore traditional valuation warnings (like high price-to-earnings ratios) because prices can keep climbing for a long time. Match the benchmark: They will track major market indexes closely so they do not fall behind other funds while the bubble is growing.

Buy popular assets: They will overweight their portfolio with leading AI companies, chips, and tech giants.

Ignore high prices: They will ignore traditional valuation warnings (like high price-to-earnings ratios) because prices can keep climbing for a long time.

Match the benchmark: They will track major market indexes closely so they do not fall behind other funds while the bubble is growing.

Avoiding Short-Term Pain

Fear of missing out: If a manager avoids AI and the bubble keeps growing for two more years, their fund will look terrible compared to competitors. Peer pressure: In finance, it is safer to fail with the crowd than to succeed or fail alone. If everyone loses money together when the bubble bursts, it is blamed on market conditions rather than poor individual skill.

Fear of missing out: If a manager avoids AI and the bubble keeps growing for two more years, their fund will look terrible compared to competitors.

Peer pressure: In finance, it is safer to fail with the crowd than to succeed or fail alone. If everyone loses money together when the bubble bursts, it is blamed on market conditions rather than poor individual skill.

The Logic of “No Consequences”

Asymmetric payoff: If the bubble grows, the fund wins prestige and high returns. If the prompt states there are zero career consequences when it bursts, the manager has zero incentive to protect........

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