Investors fear an AI bubble. What you need to know

Recently, shares of companies related to the development of artificial intelligence (AI) have fallen by $500 billion. Capitalization is falling among the fastest—growing American corporations in this area: Nvidia's drop was 4%, and Palantir, the US intelligence software provider, was 8%. The situation did not come as a surprise to investors — back in October, Amazon founder Jeff Bezos and the International Monetary Fund warned about the risk of collapse in the AI market, and on the eve of the collapse, Wall Street was talking about it. What the reduction of the AI market means and what it will lead to is in the Izvestia article.

Market skew

• The euphoria in the artificial intelligence market was caused by investors' expectations related to Donald Trump's victory in the US presidential election and his promises of tax cuts and easing regulations. Interest in AI led to the fact that the American chip manufacturer Nvidia became the first company with a turnover of $ 5 trillion, and Apple and Alphabet (Google) crossed the threshold of $ 4 trillion.

• The most visible indicator of an inflating bubble was the growing investments in AI-related startups. In the wake of high demand, investors could not assess the prospects of the projects they finance. The International Monetary Fund compared the situation to the "dotcom bubble" in 1995-2001, when a surge in investor interest in Internet companies occurred against the background of high expectations from startups, which eventually turned out to be ineffective.

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• Despite the fact that the AI sector consumes expensive resources and developments, it turned out to be unprofitable for investors. Investments in generative AI models such as ChatGPT and Midjourney have not brought significant returns. According to the Massachusetts Institute of Technology, 95% of projects in the field of generative AI do not pay off.

AI Market Prospects

• The decline in shares of AI companies is likely to continue: according to various estimates, the bubble in the market may amount to up to $ 1.5 trillion. This poses the greatest risk for the United States, where GDP growth is largely driven by modern technology. The fall in stock markets has already led to a weakening of the dollar against a basket of currencies by 0.1% and a decrease in the value of US bonds by 0.02%.

• Experts do not rule out that the stock market will grow in the future, as the field of AI is developing in waves. Artificial intelligence is at its peak, but has not yet reached its ceiling, so interest in this area is unlikely to weaken. Now the development of AI is limited by a shortage of capacities — not only modern semiconductors, but also electricity, which requires a lot. In the United States, its value is currently rising, which also affects the growth prospects of the market.

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• Stricter regulation of AI and strict copyright requirements could limit investments in artificial intelligence. Currently, only Europe has taken the path of stricter regulation of AI — in the USA, Russia and China, legislation rather contributes to the development and improvement of AI models.

Prospects of AI in Russia

• In Russia, the AI market is 2-3 years behind the development level of the United States and China, while technologically Russian AI models can already compete with their foreign counterparts. The Russian share of the total AI market is more than 1%, but its growth rate is significantly faster than the global average. The AI market in Russia is expected to grow by 45% to $2.1 billion in 2025, and double in 2027.

• Comfortable conditions have been created in Russia for the development of AI technologies. In addition to government support and incentives for artificial intelligence projects, the country has cheap electricity, which is necessary for the development of AI. Thanks to the energy of nuclear power plants, the country has virtually unlimited resources.

• The sanctions imposed by Western countries on Russia, which limited companies' access to microprocessors, have pushed their own production. Currently, a domestic specialized AI processor is being developed, which should replace foreign products.

During the preparation of the material, Izvestia interviewed:

• Candidate of Technical Sciences, Associate Professor at ITMO University Alexander Kugaevskikh;
• an artificial intelligence specialist, Said Nigmatulin.