Most Silicon Valley folks expect some degree of ‘tech talk’ when returning home for the holidays. Sometimes it’s in the form of IT support. Or nephews excited about the latest degen trends. The Uncle who is very excited to share he cut the cord on cable this summer and went all in on YouTube TV. But last week there was a single topic of conversation: are we in an AI Bubble? I expected this from portions of family tree, but it came from, well, everyone. My mother-in-law wanted to know if she could visit a Data Center with her friends. Basically my holiday table was no different than a San Francisco Blue Bottle.
Despite the Bubble question being topic du jour back home as well, I was kinda unprepared for how to summarize my current feelings. Largely because regardless of the outcome, our industry is incentivized heavily to play the game right now. And while I don’t mind shrugging and saying ‘I can argue both sides’ over cocktails at The Battery, my relatives demand more specific responses!
So here’s my 100 Hours to Go in 2025 summary. There’s not one type of bubble to assess, but instead four.
Technology Bubble -> NO. You can be a believer in Artificial Intelligence without having to assume it can achieve AGI or Superintelligence. And that’s where I am. The opportunity and promise of the technologies currently being built is as impactful as every other phase change I’ve lived through: personal computer, Internet/WWW, cloud computing, and the smartphone. I’m incredibly excited about both edges of applications – the mundane and the advanced – while thinking the middle is going to be harder to solve. What I mean by this is, lots of small productivity gains doing basic repetitive tasks and hyper-compression of complex simulations and analysis, but workflows that require multiple points of offline interactions or situational judgment or five 9s accuracy, are still elusive. That’s fine! The small stuff actually adds up to a TON of productivity gains. And the large stuff (drug discovery!) is hugely impactful.
Investment Bubble -> Likely YES. By this I mean, will the total amount of capital being deployed into the AI space provide in aggregate its expected returns (whereas the Valuation question below is the price of each asset). Here I tend to buy more of the ‘telecom buildout’ bubble thesis – that it’s not clear the starry-eyed modeling for $2 trillion more of data center capacity and so on is going to have the IRR that’s modeled today – the same can be same for chips that could lose value faster, and so on. But that these assets will still be *productive* assets over an extended period of time, not nothingburgers. So capital markets, circular business development deals, and the like are supporting an over-investment, that will decrease overall returns of much of the category, but that the yields will still be positive overall (yes, some players will go to zero).
Valuation Bubble -> Absolutely YES, in the private markets. I can’t even really bring myself to write much here. Read Pace Capital’s Chris Paik’s “Paying $3 for a Dollar: The Rational Irrationality of Venture Capital.”
Revenue Bubble -> NO. If you read my Technology Bubble paragraph above then this shouldn’t be a surprise. We could stop new model development and current model improvement RIGHT NOW and I believe it would still take 3-5 years for society to understand how to adopt all the use cases the current stack supports. Because it’s not just the input/output part, it’s also the changing of processes, strategies, and organizations to realized all the benefit of these tools. There are various reports which say “AI Revenue Must Grow XXX% YoY” to fulfill current expectations, and folks often repeat these numbers with skepticism. I’m on the bull side here – the pie is going to grow much larger over time. This isn’t just about company pilots and consumer experimentation (although there will be many shifts in where the revenue goes over the years), this is evergreen.
So I guess I’m generally bullish on the technology and business, and believe there’s a bit of a mania right now in the funding, which might help society overall but is a crazy time to live through.
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