Over the past two weeks, the world of artificial intelligence has changed dramatically. Some experts believe this could be the long-awaited bursting of the AI bubble. However, I don’t think we’re quite there yet. Here’s a summary of the latest developments and why I believe the AI bubble is still intact.
The Stargate Project: Trump’s AI Investment Plan
On January 21st, Donald Trump announced the Stargate Project, an AI investment initiative named after the 1994 movie Stargate. While it’s not a government project, it aims to attract private investors to fund AI advancements.
Big names like OpenAI, SoftBank, Oracle, and Abu Dhabi’s MGX investment fund have joined in, with an initial investment of $100 billion, expected to grow to $500 billion by 2029. However, Elon Musk quickly criticized the project, claiming they don’t actually have the $100 billion they claim.
China’s AI Breakthrough with DeepSeek
Just two days later, Chinese AI company DeepSeek released R1, an advanced reasoning AI model similar to GPT-4. Soon after, they introduced Janus Pro, a high-quality image-generation model. While these models aren’t the best in their categories, they are among the top performers.
What really shook the AI world was China’s ability to develop AI at a much lower cost. Reports suggest that DeepSeek achieved results with $6 million, whereas OpenAI required over $100 million for similar performance. Likewise, they used only 2,000 GPUs compared to OpenAI’s 100,000 GPUs.
Adding fuel to the fire, DeepSeek was built on Meta’s open-source LLaMA and was likely trained using OpenAI-generated data—something nobody expected. While some experts question the accuracy of China’s cost estimates, there’s a broad agreement that their efficiency is impressive and could be a game-changer.
Stock Market Shake-Up
Following DeepSeek’s announcement, Nvidia’s stock plunged by 17%, wiping out over half a trillion dollars in value. AI expert Gary Marcus even compared OpenAI to WeWork, a company that once had massive investments but eventually went bankrupt due to an unsustainable business model.
Yes, there is an AI bubble, with many companies being hugely overvalued, but I don’t think it’s ready to burst yet. The reason Nvidia’s stock dropped is that cheaper AI models could reduce the demand for its expensive chips. However, lower AI costs open the door for more players in the market, which could actually be good for the economy in the long run.
When Will the AI Bubble Burst?
The real burst will happen if it becomes clear that large language models (LLMs) won’t be profitable in the long term. Some experts, including John Leun and Gary Marcus, believe that LLMs won’t lead to true artificial general intelligence (AGI). If AI companies keep investing billions without making real progress, the market will eventually crash. However, for now, the Stargate Project is still pumping more money into the industry, keeping the bubble inflated.
A Smarter Strategy? Let Others Take the Risks
China’s approach has shown that waiting and learning from others’ mistakes can be an effective strategy. They’ve managed to cut costs by building on existing knowledge, rather than starting from scratch. Similarly, Europe tends to take a cautious approach, avoiding the high risks that American companies take. While this can sometimes seem too slow, in this case, it might work out in their favor.
Final Thoughts
AI is evolving rapidly, and while the market is unstable, it’s not crashing yet. Lower costs and more competition could benefit technology and the economy rather than harm them. Instead of a full-blown bubble burst, we might just see a shift in power from one group of companies to another.
Let’s see what happens next!