Artificial intelligence (AI) is widely regarded as a revolutionary technology, fuelling growth in various sectors and creating a surge in demand for specialised hardware, particularly from companies like Nvidia. According to Forbes, Nvidia’s stock price has more than tripled in a year. Other tech giants like Google and Microsoft, invested heavily in AI, have also seen large increases. However, alongside the excitement, concerns have been growing about the sustainability of the AI boom, raising the spectre of a potential bubble bursting.

The Rise Of Nvidia: From Chipmaker To AI Giant

Nvidia has become a poster child for the AI boom, primarily due to its dominance in the graphics processing unit (GPU) market, which is essential for AI training and inference tasks. The company briefly became the world’s most valuable firm in June 2024, dethroning Microsoft, largely due to skyrocketing demand for AI chips. Its market capitalisation hit $3.33 trillion due to the stellar rise in its stock price. Nvidia’s GPUs power the development of AI models, enabling breakthroughs in machine learning, natural language processing and other cutting-edge technologies.

However, Nvidia’s meteoric rise has also led to concerns. Analysts have pointed out that much of Nvidia’s value is tied to the belief that AI’s economic potential will continue to expand exponentially. Some worry that if this expectation does not materialise, Nvidia’s stock could suffer significantly, potentially signalling the burst of the AI bubble.

Demand And Supply Dynamics

The demand for AI-related hardware, especially GPUs, has far outstripped supply, with companies across the globe investing heavily in AI infrastructure. Major cloud service providers, often referred to as “hyperscalers”, have placed massive orders for Nvidia’s GPUs, hoping to bolster their AI capabilities. This rush has created supply chain bottlenecks, leading to rising prices and longer lead times for essential components.

Despite the high demand, some industry insiders are questioning whether this level of investment is sustainable. Hedge fund Elliott Management, for instance, said it was “sceptical” that Big Tech companies would keep buying the chipmaker’s graphics processing units in such high volumes, and that AI is “overhyped with many applications not ready for prime time”, per a Financial Times report. The company also pointed out that AI technology consumes significant amounts of power, making some applications prohibitively expensive in the long run.

Power Requirements And Sustainability Concerns

Another critical issue is the power consumption associated with AI technologies. Training large AI models requires vast amounts of computational power, which, in turn, demands enormous energy resources. Data centres housing thousands of GPUs have to be cooled and powered continuously, leading to concerns about the environmental impact of AI expansion. Nvidia shipped 100,000 units last year expected to consume 7.3 times of energy annually.

The energy consumption of AI models is becoming a point of contention, as stakeholders weigh the benefits of AI against its sustainability. Some experts believe that as AI technologies mature, they will become more efficient, reducing their environmental footprint. However, others are sceptical, arguing that the demands of AI will only increase as more complex models are developed.

Economic Theories And The AI Bubble

From an economic perspective, the concerns around the AI bubble mirror those seen in past tech booms. When demand for a particular technology skyrockets, driven by expectations of future profitability, it often leads to inflated valuations of companies associated with that technology. This dynamic has been observed in other periods of technological euphoria, such as the “dot-com bubble” of the late 1990s.

In the case of AI, many investors are betting heavily on the technology’s future potential, often without a clear understanding of how or when these investments will generate returns. The economic principle of supply and demand suggests that if AI cannot meet the lofty expectations set for it, the resulting disappointment could lead to a sharp correction in the market. This is particularly relevant to companies like Nvidia, whose fortunes are closely tied to the success of AI.

Additionally, as more players enter the AI hardware market, competition could increase, leading to lower prices and thinner profit margins. This could further destabilise the market, especially if the anticipated demand for AI technologies does not materialise as expected.

Is The AI Boom Sustainable?

The AI industry continues to attract massive investments, and Nvidia’s growth has been a significant beneficiary of this trend. However, experts caution that this surge in interest may not be sustainable in the long term. Companies are spending billions on AI research, hardware, and applications, yet the commercial viability of many AI solutions remains uncertain. Furthermore, the power requirements and environmental impact of AI technologies present additional challenges.

For now, AI remains the hottest trend in technology, with Nvidia at the centre of this boom. But as history has shown with previous tech bubbles, rapid growth can sometimes be followed by an equally dramatic collapse.

Amazon.com is expected to join Google and Microsoft on Thursday in reporting a surge in capital spending on artificial intelligence as Big Tech companies rush to capitalize on the booming technology.

The e-commerce giant’s capital investments – mostly for building cloud and generative AI infrastructure – is expected to have risen 43% in the second quarter to $16.41 billion, according to LSEG data. That represents a roughly $1.5 billion increase from the previous three months.

The steep spending is also expected to pressure Amazon’s margins, outweighing benefits from cost cuts and supply chain efficiencies that are aiding the retail unit’s profitability.

The company’s Amazon Web Services (AWS) business has long dominated the cloud-computing market, but it has been facing tough competition from Microsoft in recent quarters after the Windows maker rolled out AI-powered services to its Azure cloud business.

In response, Amazon has partnered with the likes of Anthropic and offered startups free credits that cover the cost of using major AI models to boost the market share of its AI platform Bedrock. It also named a new head for the AWS unit in May.

Microsoft and Google-parent Alphabet also said earlier this month they would plow ahead with investments even as the payoff from AI takes longer than some investors had hoped. This knocked Big Tech stocks whose valuations have soared this year on the promise of AI.

“Amazon’s capex spend will certainly be scrutinized closely. It has been slow on the adoption of AI and is skewed towards smaller companies which have struggled in the high interest-rate environment,” said Ben Barringer, analyst at Quilter Cheviot.

“We would expect AWS to start speeding things up in its AI development going forward.”

Amazon shares have risen about 23% this year. The stock has shed more than 6% since July 8, when it hit a record, part of a broader market selloff led by U.S. megacaps.

Growth at AWS is likely to have stayed similar to the previous quarter at just over 17%, according to LSEG data. But, Morgan Stanley analysts said: “AWS needs to grow 18%+ in order to … ensure investors of AWS’s (AI) positioning and its ability to generate high-teens growth through this heavy capex investment period.”

As a result of the spending increase, Amazon’s gross profit margin growth is expected to have slowed to 1.3% in the April-June quarter, compared with 2.6% in the previous quarter and an average of 2.7% over the past two years.

Growth in its North American retail business likely slowed to 8% between April and June, from 12.3% in the January-March quarter, amid signs of a wider slowdown in consumer spending and some competition from new and fast-growing Chinese players such as Temu and Tiktok Shop that are enticing more U.S. shoppers.

Amazon’s total revenue is expected to have grown 10.6% to $148.56 billion – the slowest rise in five quarters.

(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)