The current AI boom isn't a speculative demand bubble. Real companies are paying for and getting value from AI, creating a supply shortage, not an overhang. In the long term, the market's disruptive potential is actually undervalued.

Reid Hoffman clarifies that high valuations don't automatically constitute a "bubble." The term should be reserved for scenarios where a market collapse poses a catastrophic risk to the broader financial system, not just for periods of market correction or when some investments fail.

Overvaluing assets in a new tech wave is common and leads to corrections, as seen with mobile and cloud. This differs from a systemic collapse, which requires fundamental weaknesses like the massive debt and fraud that fueled the dot-com crash. Today's AI buildout is funded by cash-rich companies.

Vincap International's CIO argues the AI market isn't a classic bubble. Unlike previous tech cycles, the installation phase (building infrastructure) is happening concurrently with the deployment phase (mass user adoption). This unique paradigm shift is driving real revenue and growth that supports high valuations.

Unlike previous tech bubbles characterized by speculative oversupply, the current AI market is demand-driven. Every time a major player like OpenAI 3x-es its compute capacity, the new supply is immediately consumed. This sustained, unmet demand indicates real utility, not just speculative froth.

The current AI boom may not be a "quantity" bubble, as the need for data centers is real. However, it's likely a "price" bubble with unrealistic valuations. Similar to the dot-com bust, early investors may unwittingly subsidize the long-term technology shift, facing poor returns despite the infrastructure's ultimate utility and value.

Unlike the 2008 financial crisis, which was a debt-fueled credit unwind, the current AI boom is largely funded by equity and corporate cash. Therefore, a potential correction will likely be an equity unwind, where the stock prices of major tech companies fall, impacting portfolios directly rather than triggering a systemic credit collapse.

The risk of an AI bubble bursting is a long-term, multi-year concern, not an imminent threat. The current phase is about massive infrastructure buildout by cash-rich giants, similar to the early 1990s fiber optic boom. The “moment of truth” regarding profitability and a potential bust is likely years away.

The current AI investment boom is focused on massive infrastructure build-outs. A counterintuitive threat to this trade is not that AI fails, but that it becomes more compute-efficient. This would reduce infrastructure demand, deflating the hardware bubble even as AI proves economically valuable.