Is there an AI bubble going on? Will it pop?
Hint: The study dates published already 2018.
"... AI companies are both supplying and investing in each other, a [partially circular] pattern that has drawn comparisons to the dot-com era, when telecom companies loaned money to customers so they could buy equipment. Nvidia invested $100 billion in OpenAI and promised to supply chips for OpenAI’s data-center buildout. OpenAI meanwhile took a 10 percent stake in AMD and promised to pack data centers with its chips. ...
When it comes to technology, investment bubbles are more common than not. A study of 51 tech innovations in the 19th and 20th centuries found that 37 had led to bubbles. Most have not been calamitous, but they do bring economic hardship on the way to financial rewards. It often takes years or decades before major new technologies find profitable uses and businesses adapt. Many early players fall by the wayside, but a few others become extraordinarily profitable. ..."
From the abstract:
"The interplay between innovation and the stock market has been extensively studied by scholars across all business disciplines. However, one phenomenon remains understudied: the association between innovation and stock market bubbles.
Bubbles—defined as rapid increases and subsequent declines in stock prices—have been primarily examined by economists who generally do not focus on individual characteristics of innovations or on the consequences of bubbles for their parent firms.
We set out to fill this gap in our paper. Using a sample of 51 major innovations introduced between 1825 and 2000, we test for bubbles in the stock prices of parent firms subsequent to the commercialization of these innovations.
We identify bubbles in 73% of the cases. The magnitude of these bubbles increases with the radicalness of innovations, with their potential to generate indirect network effects, and with their public visibility at the time of commercialization.
Moreover, we find that parent firms typically raise new equity capital during bubble periods and that the amount of equity raised is proportional to the magnitude of the bubble.
Finally, we show that the buy-and-hold abnormal returns of parent firms are significantly positive between the beginning and the end of the bubble, suggesting that these innovations add value to their firm and to the economy, in spite of the bubble.
Our findings have important implications for managers interested in commercializing innovations and for policy makers concerned with the stability of the financial system."
Two Centuries of Innovations and Stock Market Bubbles | Marketing Science (no public access)
