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ChatGPT and the New AI Bubble

For the last two months, AI (Artificial Intelligence) has become the new thing that everyone is talking about. This hype being built around AI is precisely based on everyone’s attraction for one particular software named ChatGPT. Indeed, ChatGPT is a new software developed by OpenAI, which is an American artificial intelligence research laboratory, which conducts AI research to promote friendly AI that would bring value to humanity.

ChatGPT was released on November 30, 2022, and it is already valued at $29 billion. ChatGPT, surely, facilitates a number of things people can do. As a matter of fact, ChatGPT is a large language model (LLM) and LLMs are trained with massive amounts of data to accurately predict what word comes next in a sentence. Students can use it to learn about new things, improve their vocabulary, and continue their learning when the teacher is not always there to help. Though, many academics have complained about this feature because this will incentivize students to cheat during tests. ChatGPT was also trained using human feedback so that the AI learned what humans expected when they are asked a question. With ChatGPT, one can customize their resume and cover letter with the software, obtain relationship advice, make original jokes, solve tricky math problems on a step-by-step basis, write music…etc. It is understandable why there is some sort of hype being built around this new technology. But there is a problem.

Source: TradingViews

A hype built around a new trend usually leads to an asset bubble and then to a burst. The euphoria being created around AI is the same euphoria that the dot-com industry experienced in the late 1990s and early 2000s with the dot-com bubble. Everyone in the 1990s became obsessed with the internet, and this hype built around the internet led to distorted valuations of internet-based companies. These internet companies had valuations that were way higher than their intrinsic value. The high valuations of these companies create a FOMO (Fear Of Missing Out) atmosphere in the market. People feared missing out on “the next big thing” and so everyone started buying shares of these companies hoping to make a profit. Smart investors started to cash out when they realized that the euphoria reached its peak. The next and last logical step in an asset bubble is the panic. That’s when investors start panicking because no one else is buying, so the price of the asset starts to fall dramatically. This means the bubble has burst, and many people started losing their money from these over-valued assets.

The current euphoria around ChatGPT is a replica of the dot-com bubble. According to professional investors such as CEO Joshua Brown and CFA Michael Batnick from Ritholtz Wealth Management, LLC., it is very much possible that a bubble has already been formed around ChatGPT and this bubble could be the catalyst of the burst of the AI/tech industry if the euphoria continues. The global AI market is currently valued at over $136 billion, and it is projected that this industry will grow thirteen times over the next 7 years, and the AI market is expected to grow by at least 120% year-over-year. For these numbers to come to fruition, the current euphoria built around ChatGPT needs to water down, otherwise, a burst of the bubble will setback these projections.


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