[Into The World Of AI] "Is The AI Bubble As Big As Jupiter?" Bubble Fears Reignite After MS Shock

Sorting Out Winners and Losers Among AI Companies Begins in Earnest
Hassabis, CEO of Google DeepMind: "Even if the bubble bursts, we will be fine"

"The artificial intelligence (AI) bubble is as big as the planet Jupiter, and when it bursts, investors could be hurt. When the AI bubble bursts, the pain will exceed the 2000 dot-com crash." (Eric Gordon, Professor at the University of Michigan)

Microsoft's (MS) earnings announcement has hit the New York Stock Exchange hard, reigniting the artificial intelligence (AI) bubble theory. On the 29th (local time), MS's fourth-quarter results (October to December 2025) came in below expectations, triggering a sharp drop in its share price and a simultaneous decline in major software stocks, which dampened investor sentiment. On top of this, the AI bubble theory, which resurfaces whenever it is almost forgotten, has flared up again, leading to a split in expert opinion.

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MS, seen as a bellwether for big tech, sent shockwaves through the market when its share price plunged 10% during the previous session and closed at 433.50 dollars, a move that is being attributed to a slowdown in growth in its cloud services division, the company’s main growth engine. MS has been making massive investments in AI infrastructure and data center expansion, and mounting concerns that rising costs could translate into a tangible decline in profits have weighed heavily on the stock. In a single day, its market capitalization fell to 3.222 trillion dollars.

Excessive reliance on OpenAI is also cited as a negative factor for MS’s share price. Nearly 45% of MS’s remaining cloud contract balance of 625 billion dollars is reportedly tied to OpenAI, prompting criticism that its dependence on a single partner is excessively high. With growth slowing in MS’s core cloud services business in the fourth quarter and its operating margin outlook for the first quarter of this year revised downward, the bubble narrative, which had briefly subsided, has resurfaced. As concerns persist that big tech’s AI capital expenditures are excessive and investors continue to sell, the share prices of software powerhouses such as Oracle, Palantir, and Salesforce have also weakened.

Demis Hassabis, CEO of Google DeepMind

Gurus are divided over the AI bubble theory. At the World Economic Forum (WEF) recently held in Davos, Switzerland, Demis Hassabis, Chief Executive Officer (CEO) of Google DeepMind, drew attention by raising the AI bubble issue. While Jensen Huang, CEO of Nvidia, dismissed the bubble theory in a conversation with Larry Fink, CEO of BlackRock, at the WEF, saying, "The AI bubble occurs because the scale of investment is large, and the reason the investment scale is large is that we need to build AI infrastructure across five layers," Hassabis warned of a bubble.

In an interview with the Financial Times (FT), CEO Hassabis said, "Some AI investment is increasingly looking like a bubble," adding, "It seems somewhat unsustainable that brand-new startups with no products or technology at all are raising billions of dollars in seed funding. There could be a correction in parts of the market."

Microsoft's earnings announcement has hit the New York Stock Exchange hard, reigniting the artificial intelligence (AI) bubble theory. Photo by Getty Images

However, he noted that even if the bubble bursts, Google could avoid the worst of the fallout. CEO Hassabis said, "Demand for Google AI products such as the Gemini 3 model is stronger than ever," and argued, "We will be fine if the bubble bursts. We have an enormous business that can add more AI capabilities and further boost productivity."

The prevailing view in the industry is that the AI bubble debate will remain a contentious issue this year, as it was last year. Riding the AI boom, the share prices of cloud-related companies have surged and massive investment has poured in, but a gap is opening up as earnings and profitability fail to keep pace. An IT industry insider said, "Investor interest is concentrated on AI companies, but because it has not yet translated into full-fledged profits, the controversy continues," adding, "This year, as more companies achieve monetization, it will be a year in which the winners and losers among AI companies are sorted out."