Consider This from NPR - We may be in an AI bubble. What does that mean?

Episode Date: October 16, 2025

Is the AI boom an AI bubble? Wall Street and Silicon Valley increasingly think so.This week JPMorgan Chase CEO Jamie Dimon said "a lot of assets" appear to be "entering bubble territory."Earlier this month Amazon founder Jeff Bezos said the AI market was an "industrial bubble" where stock prices were "disconnected from the fundamentals" of their businesses.But big tech shows little sign of pausing its massive investments in artificial intelligence. So how is it that A-I could change the world ... and is also maybe in a bubble?Stanford economist Jared Bernstein, a former White House chief economic adviser and co-author of a recent New York Times op-ed on the subject, explains.For sponsor-free episodes of Consider This, sign up for Consider This+ via Apple Podcasts or at plus.npr.org. Email us at [e-mail] episode was produced by Brianna Scott. It was edited by Patrick Jarenwattananon. Our executive producer is Sami Yenigun.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

Hey, before we get to today's Consider This, we have heard from listeners who say that Consider This has become part of their daily routine, a way to make sense of things. If that is true for you, too, take a couple minutes and leave us a review. It's a small thing, but it really does help people find the show. Thank you. And now to today's episode. This partnership, I mean, this is, you know, monumental in size. That is the CEO of NVIDIA, Jensen Wong. His company makes advanced computer chips, and he went on CNBC to talk about Nvidia's plans to invest up to $100 billion in OpenAI.

That's the creator of ChatGPT. There's no question that AI is transformational for every industry, but the important thing is the AI infrastructure will be everywhere, and it will power computing experiences for everyone every day. A hundred billion dollars is a whole lot of money, but it's only one fraction of big tech's recent spending spree on artificial intelligence. In fact, the Financial Times reports that Open AI has already announced about $1 trillion worth of deals with other companies this year alone.

Right now, a lot of big names in tech are all in on AI. The biggest impact that AI is going to have is the, It is going to affect every company in the world. It is going to make their quality go up and their productivity go up. That's Amazon founder Jeff Bezos, speaking at Italian Tech Week earlier this month, where he also said... The second thing that happens when people get very excited, as they are today about artificial intelligence, for example, is every experiment gets funded. Every company gets funded. The good ideas and the bad ideas.

and investors have a hard time in the middle of this excitement distinguishing between the good ideas and the bad ideas. Bezos said that AI was in a, quote, industrial bubble, that right now AI stock prices were, quote, disconnected from the fundamentals of their businesses. So how is it that AI could change the world and is also maybe in a bubble? I think it's almost a crisis moment for AI companies because the capital, expenditure required to build these massive models is astonishingly large. Cal Newport is a computer science professor at Georgetown University and a contributing writer to

the New Yorker. And he says that sooner or later, the AI companies are going to need to produce some big returns on their big investments. And in order to make a huge amount of money from these technologies, you need hugely lucrative applications. How are we going to make enough revenue to justify hundreds of billions of dollars of capital expenditures that's required to train these models. Consider this on Wall Street and in Silicon Valley, even people who fully believe in the potential of AI, are now warning that right now the AI market may be in a bubble of overinflated expectations. What if we are in a bubble? And what if that bubble bursts?

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or wherever you get your podcasts. It's Consider this from NPR. So is the AI boom actually more of a bubble? Because Wall Street is increasingly afraid of that. In fact, this week, J.P. Morgan's CEO, Jamie Diamond, said, quote, a lot of assets appear to be entering bubble territory. And Bank of America's monthly survey finds that, that more than half of global fund managers now do believe that AI stocks are in a bubble.

So what would happen if that bubble bursts? Well, to talk more about that, I'm joined now by Jared Bernstein. He's a policy fellow at the Stanford Institute for Economic Policy Research. He was also the former chairman of the Council of Economic Advisers under President Biden. Welcome. Thank you for having me. Thanks for being with us. Okay, so bubble or not, it still feels like gazillions of dollars are going into AI companies right now.

And we keep hearing how incredibly profitable the chipmaker Nvidia is. So just to confirm, there is still tremendous amounts of investment going into AI at the moment, yeah? Yeah. And there's tremendous amount of investments going into all the past bubbles we've had, starting in the 1600s with the tulip bubble. Right. So one of the characteristics of a bubble is that the level of the investment becomes detached, lastingly or persistently detached from the amount of return or profit.

that that asset, be it housing or internet, could plausibly generate. So the idea that you have a lot of investment flowing in is consistent with a potential bubble. Got you. Let's talk more about that because you have recently written an op-ed in the New York Times, which you wrote with Ryan Cummings, a fellow economist. And your op-ed, it's literally titled, AI sure looks like a bubble. Watch out when it pops. Okay. So first, generally, what defines a bubble? It's what I was just saying, every time you buy a stock, you're speculating on its future earnings, of course. Sure. What happens here is that large swaths of investors just continuously pour more investment into this asset

without a ton of regard for how much it could reasonably pay back and buy when. So let me just make sure I understand. When we call something a bubble, the implication is more about that thing being overhyped in its ability to make money, not necessarily being overhyped as a technology, correct? Critically important distinction you've just made because I wouldn't want anyone listening to this or reading our piece to think that we are disparaging AI's potential, innovative, or economically transformational impact, which could be huge. One bubble we haven't talked about is the railroads back in the 1800s, and same thing.

huge investment bubble, it burst, it created tremendous economic havoc, and then it productively transformed the economies that were building it out. What we're talking about is very specifically whether the financing, the level of financing, is justified given the amount of returns that it implies. And if it's not, if investors start to get worried about this particular bet, they can unwind that bet. And if enough of them do that at the same time, then you have a bursting bubble. Okay. Well, if this AI bubble is indeed a bubble and it bursts, how could that bursting potentially affect all of us? I mean, could it trigger a recession, you think? There's no question it could trigger a recession. And in fact, past bubbles have clearly done so.

When the internet bubble burst, the unemployment rate went up a couple of points. That was not as bad as the housing bubble, which led to a shutdown of global credit markets and an unemployment rate in this country that went up over five points. What we worry about in the case of the AI bubble is something called the wealth effect. And that means that if the stock market tumbles enough so that people feel, and in fact are a lot less wealthy, they're going to spend less. And real consumer spending has been driving this economic recovery. Should that retrench, because of a bursting in the AI bubble and this wealth effect, it's potentially recessionary. Hmm. Well, then is there some kind of course correction to be done here in order to avoid a burst of a bubble or to mitigate whatever damage results from the bubble bursting?

The mitigation typically takes the form of fiscal policy, unemployment insurance, the usual kinds of programs that we implement when the economy takes a hit. there's not that much you can do to deflate a bubble, or at least not much that you can do safely, except what we're doing right now, which is to try to talk about it, to raise consciousness among investors so that the numbers and risks are more transparent versus more opaque. I've always thought that opacity is really your enemy when you're talking about this kind of finance. So I think the more we can be transparent about the valuations that are in place, about the expected returns, about the potential economic impacts of AI, the better chance we have of rationalizing some of this potential irrationality.

Jared Bernstein is a policy fellow at the Stanford Institute for Economic Policy Research. Thank you so much for joining us today. My pleasure. This episode was produced by Brianna Scott. It was edited by Patrick Jaron Watananan. Our executive producer is Sammy Yenigan. It's Consider This from NPR. I'm Elsa Chang.

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