Tech expert Erik Gordon has predicted that the potential crash of the AI boom could have a more severe financial impact than the dot-com bust.
The professor from the University of Michigan pointed to the recent stock plunge of an AI startup as an indication of the significant financial risks involved.
As per the report by Insider, Gordon, who specializes in studying financial markets and technology, has previously described the AI boom as an “order-of-magnitude overvaluation bubble.”
He used the recent market performance of AI infrastructure startup CoreWeave to illustrate the potential risks.
CoreWeave’s shares fell by 33% over a span of two days, wiping out around $24 billion from its market cap. Gordon suggested that this event demonstrates how “more investors will suffer than suffered in the dot-com crash, and their suffering will be more painful” if the AI bubble bursts.
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Gordon drew a comparison between the market values of Pets.com, a symbol of the dot-com mania, and CoreWeave. The latter’s loss to its market cap is almost 60 times the peak market cap of Pets.com.
Despite the significant drop, CoreWeave’s stock closed at approximately $100 a share on Thursday, which is more than double its listing price of $40.
“It takes a hype-driven tech stock to instantly destroy $20 billion in wealth,” Gordon told the outlet. He cautioned that the potential losses in AI could surpass those experienced in the dot-com era.
The AI industry has seen a rapid surge in recent years, with startups like CoreWeave gaining significant market valuations.
However, as Gordon’s warning suggests, this boom could potentially lead to a devastating financial crash, similar to or even worse than the dot-com bust.
The recent plunge in CoreWeave’s shares serves as a stark reminder of the risks involved in such overvalued markets. Investors and market watchers would do well to heed Gordon’s warning as they navigate the volatile landscape of AI investments.
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