OpenAI’s Sam Altman Says AI Is Dangerous Bubble

By Douglas A. McIntyre Published Aug 18, 9:15AM EDT

24/7 Wall St. Key Points

OpenAI’s Sam Altman warns of an artificial intelligence (AI) bubble.
Big tech stocks like Microsoft Corp. (NASDAQ: MSFT) could collapse if Altman is correct.

Follow 24/7 Wall St. on Google

This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.

OpenAI’s Sam Altman Says AI Is Dangerous Bubble — © JodiJacobson / E+ via Getty Images

The artificial intelligence (AI) industry has two people who are viewed as its leaders. One of these is Jensen Huang, the leader of dominant AI chip maker Nvidia Corp. (NASDAQ: NVDA | NVDA Price Prediction). The other is Sam Altman, leader of AI company OpenAI. Altman recently said the industry is in a high-risk bubble.

Altman told a group of journalists recently that AI has formed a dangerous bubble. “When bubbles happen, smart people get overexcited about a kernel of truth.” He added that AI has a remarkable future, but investors have gotten ahead of themselves.

Although Altman did not say so exactly, it appears he is referring to the dot-com bubble of 1999 to 2002, according to CNBC. The Nasdaq dropped 80% over the period, and some of the most prominent companies in the industry went under.

Dr. Torsten Sløk, the chief economist of Apollo Academy, wrote last month that “The difference between the IT bubble in the 1990s and the AI bubble today is that the top 10 companies in the S&P 500 today are more overvalued than they were in the 1990s.” The Apollo Academy is part of the global private equity leader Apollo Global Management.

What This Means for the Magnificent 7

If Altman and Sløk are right, the stocks of some of America’s largest companies could face a significant sell-off. Meta Platforms Inc. (NASDAQ: META), Microsoft Corp. (NASDAQ: MSFT), and Amazon.com Inc. (NASDAQ: AMZN) reported that they will invest tens of billions of dollars in AI server farms this year. This could be the most significant capital expenditure level in history.

The earnings of the large companies rely heavily on the success of their AI initiatives. That, in turn, translates into the value of their stocks.

What is the best way to look at a potential sell-off of the world’s most valuable companies based on market cap? One way is to look at their stock prices before the AI investment frenzy. In August 2023, Microsoft traded at $311. Today, it trades at $520, which is a gain of 67%. Meta traded at $274 in the same month. Today, it trades at $785. Meta’s stock is on its way to tripling over the same period.

Granted, Meta and Microsoft have posted good earnings in the past two years, but that cannot, in and of itself, explain the jump in their share prices.

If Altman is correct, the collapse of these stocks could be tremendous.

Move Over, Magnificent 7: The Frontier 7 Will Redefine Our Future

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.