The boss of Google’s parent firm, Alphabet, has warned that no company would be immune if the artificial intelligence (AI) bubble bursts.
Sundar Pichai told the BBC that while the level of investment in AI had been an ‘extraordinary moment’, there was some ‘irrationality’ in the ongoing boom.
Asked whether Google would be immune to the impact of the AI bubble bursting, Pichai said the business could weather the potential storm, but issued a warning.
He said: ‘I think no company is going to be immune, including us.’
The warning came as stock markets lurched lower once again with the FTSE 100 falling 115 points or 1.2 per cent in early trading on Tuesday.
The blue-chip index has dropped more than 300 points, or over 3 per cent, in the past four sessions since reaching an all-time high above 9900 on Wednesday last week.
The sell-off, which has been echoed around the world, has fuelled fears the bubble is about to burst.
Victoria Scholar, head of investment at Interactive Investors, said there was ‘a sea of red’ across stock markets while bitcoin has also taken a hit – losing all of its gains so far this year.
‘Fears of an AI bubble and concerns about the market’s heavy dependence on a handful of tech giants have caused investors to dial back their exposure to speculative assets such as bitcoin,’ said Scholar.
‘There’s a general sense of nervousness that has captured the market mood lately and bitcoin appears to be in the firing line.’
In Silicon Valley, the debate over whether AI firms are overvalued has taken on a fresh urgency in recent weeks.
Investors are increasingly nervous over warning signs that a surge in AI stocks that has propelled US markets to a series of highs could prove overdone.
Warning: Sundar Pichai, the boss of Google parent Alphabet, said there was some ‘irrationality’ in the current AI boom
Pichai said the tech sector can ‘overshoot’ in investment cycles such as this.
He added: ‘We can look back at the internet right now. There was clearly a lot of excess investment, but none of us would question whether the internet was profound.
‘I expect AI to be the same. So I think it’s both rational and there are elements of irrationality through a moment like this.’
The International Monetary Fund and Bank of England have both warned of the risk of an AI bubble in recent weeks.
In the last seven months, shares in Alphabet have more than doubled in value to $3.5trillion, or £2.7trillion, as markets have grown more confident in the firm’s capacity to fend off the threat from ChatGPT owner OpenAI.
A particular focus is Alphabet’s development of specialised superchips for AI that compete with Nvidia, run by Jensen Huang, which recently reached a $5trillion valuation.
Vast valuation: Nvidia, run by Jensen Huang, recently reached a $5trillion valuation
As valuations increase rapidly, some analysts have expressed scepticism about a complicated web of huge deals being done around OpenAI, which is expected to have revenues this year of less than one thousandth of the planned investment.
This week, it emerged that tech billionaire Peter Thiel had sold his entire stake in chip maker Nvidia, worth an estimated $100million, or £76million.
Recently, Softbank dumped its £4.4billion holding in Nvidia. The firm’s finance chief, Yoshimitsu Goto said: ‘I can’t say if we’re in an AI bubble or not.’
In October, OpenAI boss Sam Altman said he expected investors would make some bad calls and certain subpar AI start-ups would walk away with silly money.
Last month, the boss of US banking giant JP Morgan told the BBC that while he believed high investment in the AI sector would pay off, some money being ploughed into the sector would ‘probably be lost.’
Jamie Dimon, the boss of US bank JP Morgan, who told the BBC last month that investment in AI would pay off, but some of the money poured into the industry would ‘probably be lost.’
Pichai told the BBC that Google’s model of owning its own ‘full stack’ of technologies, from chips to YouTube data to models and frontier science, meant it was in a better position to ride out any AI market turmoil.
Amid fears of the AI bubble bursting, Bitcoin has seen its gains for the year wiped out.
The value of the world’s most popular cryptocurrency tumbled below $93,000, down from its all-time high of more than $126,000 just six weeks ago.
Nigel Green, chief executive of deVere Group, said the next few weeks will set the tone for AI in 2026.
Green said: ‘AI has been the engine of global markets for two years, but the phase of unchecked optimism is giving way to a sharper focus on resilience.’
He added: ‘Investors are assessing strategy in real time.
‘They’re rewarding companies that show control over investment and demonstrate that AI adoption is enhancing margins. The market is far less forgiving when spending outpaces revenue potential.’
Richard Hunter, head of markets at Interactive Investor, told the Daily Mail: ‘The comments from Pichai echo the conundrum which investors are currently grappling with, which has resulted in some broader market weakness.
‘Fears of overstretched valuations and the wisdom of the hundreds of billions of dollars currently being invested in AI generally have led to concerns on the timeframe of any returns on that spend.
‘In the meantime, while there have been some early signs of adoption, the mega cap technology stocks are facing an increasingly high bar of expectations, with the most imminent acid test coming in the form of Nvidia results tomorrow.’
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