Is this what an AI bubble looks like? And if so, what does it mean for you?
January 27, 2026
By Matthew Pietz
This article was written and edited without the use of AI.
You can never see a stock market bubble from the inside, making it impossible to name with certainty before the pop. But at Keranaut we’ve been digging deep on the question of an AI bubble lately, and we feel there are several compelling reasons to believe we’re in one. After a list of the signs of the AI bubble, we’ll discuss what it means for the average person.
History: A Harvard study in 2018 found that in about 50% of the cases where stocks doubled in 2 years, they crashed. So all other things being equal, there’s a 50-50 chance we’re in a bubble. What makes a bubble possible is the unknown: some new good or service arrives and people don’t really know what it’s worth yet, and they overvalue it. Could this be the case with AI? Well, yes:
Limits of LLMs: There needs to be an actual profitable product at the heart of all this growth. And if you can’t trust an AI to do a real job by itself, it’s hard to see a path to profitability for the large AI companies. Despite hype about “agentic” AI, we don’t think companies will scale truly autonomous agents using LLMs, because hallucinations appear to be inherent. You always have to check their work, and in the workplace profit and legal liability are at stake. AI is fun, and it’s useful as a kind of empowered search engine, image generator or email drafter, but that doesn’t mean it’s creating value in the economy at levels anywhere near justifying the amounts spent, to say nothing of the environmental impact of data centers. Let’s talk about those amounts.
The numbers: In the last three years, Google, Facebook and Microsoft has spent almost $1 trillion on AI, and OpenAI plans to spend over $1 trillion more on datacenters alone. Sure, ChatGPT has 700 million weekly users, but one analyst calculates every single ChatGPT user would have to pay $600 a year to make the company profitable. In fact, OpenAI is projected to lose $40 billion by 2028. People point to Uber as a comparable tech company that lost a lot of money, but Open AI has lost 10 times as much in one-third the time, and the value of ordering a taxi by app is much clearer than the value of a hallucinating text-and-image generator. Bain & Company says even if AI creates innovations that are fed back into the economy, the huge costs could mean a shortfall of $800 billion across the industry. Maybe all of this is why Sam Altman himself said we are in a bubble.
Weak counterarguments: A common response by boosters is, follow the money. Informed people are investing in these companies, so ignore the noise (i.e., articles like this one) and see what people actually do with their own cash. But if that were a solid argument, no bubble would ever have happened in history. Even informed professional investors can get overexcited about something new.
So What? Some bubbles deflate without much damage to the average person. But many readers who were around for the 2008 housing bubble will remember that they can be awful, and given that the lion’s share of 2025’s market growth was from tech, a collapse could hit a lot of people. A former chief economist for the IMF says it could erase $35 trillion from the global economy. Any retirement or other savings tied to market indexes or the “Magnificent Seven” top tech stocks would take a hit, and of course tens of thousands working in tech could lose their jobs.
In light of all of the above, you might be surprised to learn that our prediction for the overall direction of society in 5-10 years does not change: significant disruption caused by, yes, AI. We’ve stated before that other avenues of AI, like neuromorphic computing, have tremendous promise to imitate intelligence without hallucinations and for a fraction of LLM’s energy use, and in fact a new artificial neuron announced in October is driving that tech forward.
So after the pop, we should continue to plan for a post-AI economy, and all that may imply. We look forward to navigating it with you!
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