Is this an AI Startup Bubble?

In the past year, there has been a surge of interest in artificial intelligence (AI) startups. Every new company seems to be claiming to use AI to revolutionise its industry, and venture capitalists are throwing money at them left, right and centre (Vynck, 2023). But is this just a bubble waiting to burst?

There are certainly some reasons to be concerned. Many AI startups are still in the early stages of development, and it's not clear if their products will ever be viable. In addition, the AI market is becoming increasingly crowded, and it's becoming harder for startups to stand out from the competition. In the U.S alone the AI market value of nearly 100 billion U.S. dollars is expected to grow twentyfold by 2030, up to almost two trillion U.S. dollars (Thormundsson, 2023). Even PwC forecasts that AI could contribute $15.7 trillion U.S Dollars to the global economy by 2030 (PwC, 2023). A quick moving saturated market ready to burst.

However, there are also some reasons to be optimistic about the future of AI. The market is growing more than ever and has streamlined a lot of mundane tasks…like building resumes! The current technology is still in its early stages, but it has the potential to revolutionise many industries. And as AI matures, it's likely that we'll see more successful AI startups emerge – growing our free market giving access to many. Which is forecasted in the graph below, highlighting the surge of the AI market.

So, is the AI bubble real? It's too early to say for sure. But there are some bubble fears growing in the Australian AI market. In 2022, Australian AI startups raised a record $3.5 billion in funding, which made some investors are worried the market is overheated (McGrath, 2023). With further risks from the amount of funding flowing into AI startups has been growing rapidly in recent years – this has never been a promising sign of a bubble (Vynck, 2023). Furthermore, the value of recent AI-related mergers and acquisitions has also been increasing achieving billion-dollar valuations.

While there is a lot of hype surrounding AI, AI giant, OpenAI reported a huge $540 million U.S Dollar loss (Chowdhury, 2023). This begs the question, how are companies really making a profit? The bubble seems to be growing as asset prices continue to grow with greater issuance. If the supply of stocks in this sector continue to outpace the demand from traders and investors, the bubble could burst. While it's far from a guaranteed outcome, it's a possibility that warrants attention.

However, one thing is for sure: the AI market is hot right now and it is growing at a rapid pace. Its impossible to know what the future holds for such a lucrative market. So, the real question is: where will the AI market stand in the coming years?