Between the extreme abundance of investments and the lack of return, there’s a lot matching with the dot-com and AI bubbles. The only difference is perspective. We can look back and see the effects of the dot-com bubble, but doing so for this AI bubble is not nearly as easy. (NFL)

Rymer: Super Bowl LX heralds a terrible omen — an AI bubble

According to the New York Times, during this year’s Super Bowl LX, 15 out of 61 —  approximately 24% — of advertisements featured AI, either directly selling the product to consumers or using it to create the ads, following a steady growth of overall AI usage since the beginning of the 2020s. This is an indicator of a growing AI bubble.

Super Bowl LX strongly resembles the ad lineup of Super Bowl XXXIV in 2000, where, according to the San Francisco Chronicle, 12 out of 61 —  approximately 20% —  of the advertisements were for dot-com companies. Of the 14 dot-com-era websites advertised, only four are still active and were not bought out by another company.

But what was the dot-com era, and why were these sites so unsuccessful despite their large advertising funds?

In the ‘1990s, the internet was becoming increasingly popular. Because of this, investors and entrepreneurs alike were building a lot of confidence in the internet’s ability to make money. This, along with low interest rates making capital easier to get, spawned what was coined as the dot-com craze.

In the years of the dot-com craze, tech and tech-related stocks saw a massive spike in valuation.

However, a problem arose in the dot-com market: Companies were spending much of their money on advertising while bringing in very little from sources beyond investments. This led market speculators to consider the growth a bubble, the term for a period of extreme asset growth built on unsustainable practices leading to an extreme devaluation of assets.

For multiple reasons, including heightened interest rates, Japan’s economic downturn and negative market speculation, the dot-com market peaked in spring 2000 and declined sharply in value thereafter — the pop of the bubble.

This led to many dot-com companies going under, and composite stocks weighted heavily toward the tech industry, like the NASDAQ, took large hits.

This begs the question: How does the dot-com bubble correlate to a supposed AI bubble?

AI has generally been on the rise since 2010 but saw a sharp uptick in attention in 2022. 

This 2022 spike in interest coincided with OpenAI publicly releasing its first generative AI model, DALL-E 2, able to generate images from a text input. DALL-E 2 attracted widespread internet curiosity, as users were able to generate images based on a short prompt.

Later that year, OpenAI released ChatGPT, its first generative AI chatbot. This led to Microsoft announcing a $10 billion dollar investment in the company in January 2023.

This enormous investment of money hasn’t just been seen in OpenAI, though. Throughout the industry, tech companies are all booming because of developments in AI. The NASDAQ has risen 64.7% since January 2022, signaling a large uptick in valuations of the tech industry.

For comparison, the same logarithmic view of the NASDAQ during and after the dot-com bubble:

The valuation growth is clear, but are businesses making money with AI? The surprising answer comes from an MIT research study: 95% of businesses are getting no return from AI. 

So, between the extreme abundance of investments and the lack of return, there’s a lot matching. The only difference is perspective. We can look back and see the effects of the dot-com bubble, but doing so for this AI bubble is not nearly as easy.

To say when the AI bubble will pop is speculation. Whether it happens next week or in three years, no one can truly know.

Maybe don’t base your investments on Super Bowl advertisements. All of this considered, it may be wise to curb tech investments right now, or maybe you’ll want to ride the wave and perhaps make some money from it. Just be careful with your investments — you may still be in the bubble when it pops.