The AI Market Bubble: 17x Bigger Than Dotcom

The scale of the AI bubble is staggering. Rickards cites JP Morgan’s Chair of Investment Strategy, who noted that three-quarters of gains in the S&P 500 since the launch of ChatGPT came from AI-related stocks. Without those AI-driven gains, the S&P 500 would be worth roughly half what it is today. AI expenditures accounted for 92% of GDP growth, meaning AI-related spending now contributes more to the nation’s GDP growth than all consumer spending combined.

Nvidia, which designs the advanced chips at the heart of the AI boom, became the first company in history worth $5 trillion. That single stock represents almost 20% of all U.S. GDP. As Rickards points out, Nvidia does not even manufacture its own chips. Taiwan Semiconductor and other manufacturers build them. Nvidia just draws up the designs.

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.

OpenAI is losing more than a billion dollars a month. For every dollar the company makes, it spends at least three. Deutsche Bank estimates OpenAI will need to accumulate $143 billion in negative cash flow before making a single dollar in profit. A Deutsche Bank analyst noted: No startup in history has operated with losses on anything approaching this scale.

Despite this, OpenAI plans to IPO for nearly a trillion dollars. Sam Altman, OpenAI’s CEO, once admitted: I have no idea how we are going to generate revenue. Anthropic, another major AI lab, has warned its business could go bankrupt if AI growth forecasts are off by just one year. Elon Musk’s xAI was burning through cash so fast it had to be merged with SpaceX to keep it from going under.

Rickards singles out Palantir (PLTR) as a particularly egregious example of AI overvaluation. The company has a P/E ratio of 222, which means that if you bought this stock today it would take 222 years at its current earnings to make your money back. He also points to AI startups with no products and no revenue that are supposedly worth a billion dollars, and notes that tech-sector valuations are now well above dotcom era levels.

Tech-sector valuations are now well above dotcom era levels, according to multiple sources Rickards cites. AI startups with no products and no revenue are supposedly worth a billion dollars. Speculative funds say AI will add $200 trillion to the global economy, which is nearly double the size of the entire global economy.

Some of the most successful investors in the world are already exiting AI stocks. Stanley Druckenmiller, who predicted the 2008 financial crisis, has sold all his Nvidia and Palantir shares. Peter Thiel, a techno-optimist and venture capitalist, sold his entire Nvidia stake. Michael Burry made a $1.1 billion bet against AI. Paul Tudor Jones has said this is so much more potentially explosive than 1999. Jeremy Grantham, who once managed over $118 billion in assets, stated: This is obviously a bubble. The probabilities it doesn’t bust are slim to none. Former SEC Chairman Gary Gensler said AI will be the center of the future financial crisis. Even Sam Altman has admitted: A lot of people are going to lose a phenomenal amount of money.

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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.

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