When Will the AI Bubble Burst? The August 26th Theory

Rickards pinpoints August 26th as the date the final domino could drop. This is when AI companies like Nvidia, Meta, and Coreweave release their earnings statements. He argues that a single earnings miss could be the pin that pricks the bubble. He draws a historical parallel to March 20, 2000, when Barron’s published an article called Burning Up warning that at least 50 dotcom companies would run out of money within 12 months. Within a week, stocks began to crater. Pets.com, which had IPO’d just one month earlier, plummeted 67% within a month and was bankrupt within nine months.

Rickards also points to September 28, 2007, when NetBank collapsed, marking the beginning of the subprime mortgage cascade. The Minsky Moment always takes everyone by surprise, he says. One day the market is beginning to soar. The next day, a single sobering report comes out and reality sets in.

Rickards uses the Minsky Moment framework to explain why bubbles burst suddenly and without warning. The Minsky Moment framework, named after Harvard economist Hyman Minsky, describes how bubbles collapse in four phases. First, the hedge finance phase, where companies take on debt they can repay from cash flows. Second, the speculative phase, where companies take on more debt than earnings can cover. Third, the Ponzi phase, where companies need new investors just to service existing debt. Finally, the Minsky Moment itself: the culminating event when investors finally catch on and the market suffers a massive collapse.

Rickards maps this framework directly to the current AI boom. He points out that the dotcom bubble followed the same pattern before the Nasdaq plummeted nearly 80%. The 2008 financial crisis followed it before the market fell close to 60%. The Great Depression of 1929 followed it as well. His argument is that AI is now in the Ponzi phase, and the Minsky Moment is imminent.

The historical parallels are specific and well-documented. Rickards draws extensive parallels between today’s AI boom and the dotcom bubble of the late 1990s. During the internet boom, companies spent nearly half a trillion dollars on infrastructure, installing 80 million miles of fiber optic cable across America. Eventually, 85% of those cables went unused. Internet companies spent billions on infrastructure funded by debt they could not repay because they were not making money.

The parallels to today are striking. Tech companies are pouring unfathomable amounts into data centers. Speculative funds say AI will add $200 trillion to the global economy, which is nearly double the size of the entire global economy. The media is once again proclaiming a new paradigm. But underneath the hype, Rickards argues, AI companies are going broke and need new investors just to stay afloat.

Rickards introduces the concept of extrapolation bias to explain why most investors will miss the coming crash. People believe that because something has happened in the recent past, it is likely or even inevitable that it will continue happening in the future. This psychological trap makes even the highest IQ people deny a pending disaster, no matter how obvious the danger may be.

Rickards references his experience negotiating the LTCM bailout, where Nobel Prize winners with 150+ IQs managed a fund built on models that assumed the future would look like the past. Those models nearly blew up the entire U.S. economy. Myron Scholes, who developed the Black-Scholes Pricing Model that won a Nobel Prize, was among them. The lesson: intelligence does not immunize against extrapolation bias.

The August 26th date is real in the sense that major AI companies do report earnings around that time. Whether it triggers a crash is speculative, and Rickards acknowledges this with hedging language like “we believe” and “according to our best estimates.” But the pattern he identifies, a single sobering report causing reality to set in, has historical precedent.

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Where to Learn More

For the complete analysis, read our AI Black Paper review covering Jim Rickards’ full thesis on the AI Minsky Moment.

For a deeper dive into the bubble thesis, see our analysis of AI bubble warning signs.

Learn more about the AI Minsky Moment framework in our dedicated explainer.

Ready to explore Jim Rickards’ full research? Learn more about Strategic Intelligence here.

This is not financial advice. Always do your own research before investing.