This Should Pop The AI Bubble
Oversupply indicators and insider warnings.
When will this damn AI bubble burst? How many clear-as-day signals does the market need shoved into its face for this silly charade to fall apart? Without a functional crystal ball, we simply won’t know until it is too late. But the frustration of watching the market aggressively mash the accelerator rather than the brake in response to this impending car crash is palpable. Those paying attention, who know just how insanely over-inflated this industry is, are nervously twitching at even the slightest sign that the bubble will pop. But, over the past week, we have seen some major movements that absolutely should have popped this bubble.
How does a bubble burst?
Well, a bubble is driven by speculative demand, which fuels unfounded investment that pushes an asset’s price beyond its true value and spurs a huge increase in supply as investors rush to meet this demand. A bubble bursts when this speculative demand fails to materialise, and investors realise there is a supply-side glut that undermines the value of their investments. So, they flee and sell their positions to reduce their losses, only for this mass sell-off to crash the price of these overvalued assets.
From tulip mania to the dot-com bubble to even the US housing bubble, this dynamic has played out time and time again.
So, if you don’t have a crystal ball, the next best way to try to predict when a bubble will burst is to notice when the lack of speculative demand starts to cause serious issues, a pivot, or even a walkback from those most exposed to the bubble. That is a giant red flag that the pop is rapidly incoming.
Again, I cannot predict when this bubble will pop more than I can predict when Trump will actually follow through on a peace deal with Iran. This world is a chaotic mess after all.
But we have seen three of these giant red flags over the past few weeks.
As I wrote about a few weeks ago, Elon Musk’s xAI has rented out almost all of its AI compute capacity at its Colossus data centre to its competitors, Anthropic and Google. Anthropic agreed to rent 222,000 GPUs for $1.25 billion a month, and Google has agreed to rent 110,000 GPUs for $920 million a month. Bear in mind the highest verifiable figure of operational GPUs at xAI’s only data centre is 230,000 as of September 2025. So, these deals could represent xAI renting out the vast majority of its own compute.
These deals make no sense. Musk believes that AI needs way more compute capacity, which is why he plans to launch a million orbital data centres. So why sell pretty much all of xAI’s compute capacity to xAI’s competitors?
