AI on Wall Street: A Bubble That's Too Big to Fail (Maybe)
By Oussema X AI
The rise of artificial intelligence has been nothing short of meteoric, transforming industries and capturing the imaginations (and investment dollars) of people around the world. But as AI's influence permeates the U.S. stock market, pushing indices to record highs, a crucial question emerges: are we witnessing a sustainable revolution or a speculative bubble poised to burst? Like it or not, we’re all living in the AI economy now, and its future will impact everyone.
Despite lingering economic uncertainties – trade policy woes, government shutdowns, and a cooling labor market – U.S. stock indices have defied gravity, reaching unprecedented heights this month, largely propelled by the relentless influx of investment into artificial intelligence. According to the New York Times, the biggest companies in the S&P 500, most of which boast connections to AI, account for a disproportionate share of these gains. Nvidia, the chipmaking behemoth, was single-handedly responsible for approximately a quarter of the S&P 500’s gains in the first half of 2025. source: New York Times
The AI Supply Chain: From Chips to Circularity
Ronnie Sadka, a finance professor at Boston College, highlights the widespread nature of AI investment, flowing into every corner of the supply chain: the companies developing the technology, the data centers that house it, the raw materials that fuel it, and the eager adopters hoping to leverage its power. This surge has even contributed as much as 1.1% to overall U.S. gross domestic product growth in the first half of 2025, outpacing consumer spending, according to economists at JP Morgan. source: JP Morgan
However, beneath this veneer of prosperity, storm clouds are gathering. Sadka himself acknowledges the alarm bells ringing about AI's true capabilities and limitations, emphasizing the market's ongoing struggle to discern what AI can truly deliver. source: Boston College This uncertainty is further amplified by voices within the AI community, with both Open AI CEO Sam Altman and a partner at Sequoia Capital suggesting that the AI market may be teetering on the edge of a bubble.
Echoes of the Past: Are We Over the Cliff?
Gary Marcus, a machine learning researcher and long-time skeptic of AI's economic potential, draws a stark parallel to a classic cartoon: the character who runs off a cliff and doesn't fall until they look down. “I keep thinking of the (cartoon) where the guy goes off the cliff and he doesn't fall until he looks down? We are over the cliff with AI valuations,” Marcus said, according to the report. source: NYU. His warning serves as a stark reminder of the boom-and-bust cycles that have plagued the technology sector throughout history, fueled by irrational exuberance and unsustainable valuations.
Even if the AI bubble bursts, a significant amount of money has already been made, enriching construction workers building data centers, concrete suppliers, and cloud infrastructure providers. David Gray Widder, a professor at University of Texas at Austin’s School of Information, likens cloud providers to companies selling picks and shovels in a gold rush, noting that they've already 'made bank' regardless of AI's long-term prospects. source: University of Texas at Austin This echoes a familiar pattern, where the infrastructure providers and early adopters reap the rewards while the latecomers are left holding the bag.
Too Big to Fail? The Looming Implications
Given the sheer scale and scope of AI investment in the U.S. economy, a potential AI bust could have far-reaching consequences. Many Americans, intentionally or unintentionally, are invested in AI companies through pension funds and other investment accounts, making them vulnerable to a market correction. Marcus warns that the AI sector may soon be deemed “too big to fail,” raising the specter of government intervention and potential bailouts. Given the scale and scope of AI investment in the U.S. economy, an AI bust could have widespread implications and that many Americans, intentionally or unintentionally, are invested in AI companies through pension funds and other accounts, according to the report. source: Marcus, Gary
An AI bust could have widespread implications, with many Americans invested in AI through pension funds and accounts. The current frenzy resembles other financial bubbles, where valuations become divorced from reality, and the inevitable correction can inflict widespread pain. However, even if the bubble bursts, some will undoubtedly profit, highlighting the uneven distribution of risk and reward in the AI-driven economy. The next six months or year could be a wild ride.