Professor warns AI frenzy could trigger crash echoing dot-com and financial crises

Erik Gordon, who teaches entrepreneurship at the University of Michigan's Ross School of Business, says the AI surge combines the speculative excess of the dot-com bubble with the debt-laden environment of the mid-2000s credit crisis. He warns that valuations for AI-related companies are so inflated that many investors could suffer losses comparable to those in the earlier tech bust. Gordon points to the combined market cap of Nvidia, Apple, Alphabet, Microsoft and Amazon—exceeding $20 trillion—as evidence of the market’s heavy weighting toward AI expectations.

He also highlights that AI firms have accumulated trillions of dollars in debt, both on- and off-balance-sheet, and continue to borrow. Failure to service this debt could damage banks, investment funds and insurers, echoing the contagion seen in the past financial crisis. While some industry leaders defend current valuations, Gordon and other skeptics like Michael Burry remain concerned about an impending correction.