‘Vibe revenue’: AI companies admit they’re worried about a bubble

In a recent discussion at the Web Summit tech conference in Lisbon, Portugal, prominent figures in the technology sector expressed their concerns regarding the rapidly inflating valuations in the artificial intelligence (AI) industry. Executives shared their apprehensions with CNBC, indicating that the surge of investment might lead to an unsustainable bubble. Market analysts have begun to question the viability of these inflated figures, with industry veterans like David Solomon of Goldman Sachs and Ted Pick from Morgan Stanley cautioning about potential corrections. Their remarks come as some tech companies have seen their valuations reach unprecedented heights. Michael Burry, known for his foresight during the 2008 financial crisis, has also weighed in, alleging that major AI cloud providers are downplaying depreciation costs associated with their chip assets, suggesting that profit figures for companies like Oracle and Meta may be exaggerated. During interviews at the conference, leaders from AI-focused companies voiced their worries. Jarek Kutylowski, CEO of the German AI firm DeepL, remarked, "I think the evaluations are pretty exaggerated here and there, and I think there are signs of a bubble on the horizon." His concerns were mirrored by Hovhannes Avoyan, CEO of Picsart, who highlighted that many AI startups are attracting substantial funding without generating significant revenue. He referred to this trend as companies being valued based on 'vibe revenue', a term describing speculative investment rather than solid sales figures. Despite these financial apprehensions, the overall sentiment in the tech industry remains optimistic about AI's long-term potential. Lyft CEO David Risher acknowledged the existence of a financial bubble but emphasized the transformative capabilities of AI technology. He stated, "The data centers and all the model creation will have a long life because it makes people's lives easier and better." As businesses increasingly recognize AI's potential to enhance efficiency, there is still a struggle for widespread adoption. Kutylowski pointed out that while demand for AI solutions is growing, many businesses have yet to fully integrate AI into their operations. Investment in AI continues to surge, as highlighted by a recent report from venture capital firm Accel, forecasting that new AI data center capacity will reach 117 gigawatts by 2030, necessitating around $4 trillion in capital expenditures over the next five years. This growth trajectory is expected to generate approximately $3.1 trillion in revenue to justify these investments. However, not all experts agree with the projected spending levels. Ben Harburg, managing partner at Novo Capital, expressed skepticism about the necessity of the extensive capital being discussed. He suggested that there may be overconfidence surrounding the energy and chip demands for AI projects, hinting at the possibility of a brewing bubble in the sector. As the AI landscape continues to evolve, industry leaders remain hopeful yet cautious, navigating the balance between innovation and financial sustainability.