Foreign Policy Live Is the AI Economy a Bubble?
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Oct 30, 2025 
Jared Bernstein, former chair of the Council of Economic Advisers, discusses whether the AI boom is a bubble. He explains the signs of overvaluation in the AI sector, highlighting risky circular financing and the mismatch between investment and revenue. Bernstein also examines the potential economic fallout if the bubble bursts, noting that wealthy investors may feel the most impact. Furthermore, he emphasizes the need for regulatory measures to mitigate financial risks associated with AI. His insights offer a thought-provoking look at the future of the AI economy.
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A Startup Valued Before A Product
- Mira Murati's startup Thinking Machines was valued at $10 billion before offering a product, raising $2 billion quickly.
- This exemplifies rapid speculative funding detached from concrete business plans.
Risks Of Circular Financing
- Circular financing—companies funding each other—can create illusory activity that hides lack of real external demand.
- If spending stays within a closed loop, it inflates balance sheets without sustainable revenue.
AI Unit Economics Versus Parent Firms
- Big tech's overall cash flows mask the small AI-specific revenue relative to AI spending.
- Isolating AI shows massive investment gaps that could trigger a bubble even if parent firms remain solvent.