Top tech executives have told CNBC that they’re concerned about a bubble forming in the artificial intelligence (AI) sector.
Jarek Kutylowski, CEO of German AI firm DeepL, told CNBC on Tuesday, during a Web Summit in Lisbon that he believes “the evaluations are pretty exaggerated here and there,” and that “there are signs of a bubble on the horizon.” This sentiment was echoed by Picsart CEO Hovhannes Avoyan.
“We see lots of AI companies raising … tremendous valuations … without any revenue,” Avoyan told CNBC on Tuesday, adding that it is a “concern.” He added that the market values smaller startups with “just some noise and vibe revenue,” referring to companies being backed even though they have minimal sales. Vibe revenue is a play on “vibe coding,” a term that refers to using AI to code without needing deep technical expertise.
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Other tech executives who talked about the subject include Mozilla CEO Laura Chambers who said, “Yes. It’s really easy to build a whole bunch of stuff, and so people are building a whole bunch of stuff, but not all of that will have traction. So the amount of stuff coming out versus the amount of stuff that’s going to [be sustainable] is probably higher than it’s ever been. I mean, I can build an app in four hours now. That would have taken me six months to do before. So there’s a lot of junk being built very, very quickly, and only a part of that will come through. So that’s one piece of the bubble.”
“I think the most interesting piece is monetization, though. All the AI companies, all these AI browsers, are running at a massive loss. At some point that isn’t sustainable, and so they’re going to have to figure out how to monetize,” she added.
Meanwhile, Babak Hodjat, chief AI officer at Cognizant, said he believed diminishing returns were setting in to large language models.
This is notable, as previous concerns about overstretched valuations have come from investors and leaders in the world of finance. Goldman Sachs’ David Solomon and Morgan Stanley’s Ted Pick have warned of potential corrections as valuations of some major tech firms reached historic highs.
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This week, famed “Big Short” investor Michael Burry had accused major AI infrastructure and cloud providers, or “hyperscalers” of understating depreciation expenses on chips. Burry warned that profits at the likes of Oracle and Meta may be vastly overstated. He recently disclosed put options that bet against Nvidia and Palantir.
Despite the rising concerns, the technology industry remains bullish on AI. Lyft CEO David Risher said there are reasons to be optimistic given the potential impact of AI but acknowledged the risks. “Let’s be clear, we are absolutely in a financial bubble. There is no question, right? Because this is incredible, transformational technology. No one wants to be left behind.”
Risher also went on to argue that there is a difference between the financial bubble and the industrial outlook.
“The data centers and all the model creation, all of that is going to have a long, long life, because it’s transformational. It makes people’s lives easier. It makes people’s lives better… On the other hand, you know, the financial side, it’s a little risky right now,” Risher added.