Investors and policymakers are increasingly debating whether the AI bubble is starting to burst. The uncertainty has weighed on leading AI stocks, from chipmakers like Nvidia and AMD to neoclouds like CoreWeave and Nebius, which have seen sharp pullbacks.
In China, the AI bubble has burst
China has become one of the biggest markets in the artificial intelligence industry, with the number of companies rising.
As Americans debate on whether the AI bubble is about to burst, there are signs that the Chinese one has already burst.
One way of looking at this is publicly traded companies in the country. MiniMax, which went public in Hong Kong in January, tumbled to $161 on Friday, down by over 84% from its all-time high.
Z.ai. another company that creates models similar to Anthropic and ChatGPT, ended the week at $483, down by over 80% from its all-time high. It crashed recently after seeking to raise $5 billion from investors.
Even the biggest companies in the industry have tumbled. CXMT, a company that provides memory solutions, has dropped to $41.80 from a record high of $61. Alibaba has tumbled to $97 from a high of $185 earlier this year.
Other top companies in the industry like Tencent, Xiaomi, and Lenovo Group have all slumped in the past few months.
There are signs that the AI revolution in China is following the same approach that the electric vehicle industry followed. At its peak, China had over 600 electric vehicle companies that sought to become the biggest players globally.
Today, many of those companies have disappeared, and the remaining ones, like Li Auto, XPeng, BYD, and Polestar, are struggling. They have all plunged by double digits this year, erasing billions of dollars in value.
Chinese EV companies are facing substantial competition, leading to a price war that has eroded their margins.
READ MORE: As the AI model race heats up, who will come out on top?
US AI companies are facing major risks
Turning to the United States, there are signs that companies in the AI space are facing major headwinds. For example, OpenAI has just completed a fundraising in which it raised $11 billion, well lower than its expected $30 billion. Its planned valuation of $1.4 trillion was slashed to $1.25 trillion.
Top American AI companies have also slumped. Nvidia, the biggest name of them all, plunged to $200 last week, down sharply from the year-to-date high of $243. Micron stock dropped to $884 from the year-to-date high of $1,255.
The worst affected of these are neocloud companies like CoreWeave, Nebius, IREN, MARA Holdings, and Riot Platforms. In a recent statement, Elon Musk warned that over 200 neocloud companies would collapse because of the funding issue.
There are signs that funding is becoming an issue, with bond yields for top AI companies such as CoreWeave soaring above 15%. Even Anthropic, one of the biggest names in the industry, is expected to receive a junk rating if it goes public, according to Blackstone.
Similarly, investors are pushing back against AI valuations. Firmus, an Australian company, pulled its IPO, with its investors complaining about its valuation. Nscale is also expected to launch its IPO at a much lower valuation than expected.
Therefore, there are signs that the AI bubble is about to burst, a move that will affect many companies in the United States and globally. A key reason for this is that, as in the Chinese EV industry, the AI industry is becoming highly competitive, with more companies launching their products.
In the US, this includes companies like Meta Platforms, SpaceX, Alphabet, Perplexity, Anthropic, and OpenAI. All these companies will compete with their Chinese counterparts, including Moonshot, DeepSeek, and Z.ai.
READ MORE: Big Tech’s AI bill meets a ‘Big Cash Burn’ issue: are investors’ fears justified?
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