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WHEN WILL THE AI BUBBLE BURST

ADMIN || 9th October 2025

Investors know stocks are in a bubble and it may not pop until there’s a realization that artificial intelligence won’t generate the revenue to justify companies’ incredible capital expenditure. But that might be still 1-2 quarters away.

For e.g. while Oracle generated roughly $900 million in revenue from the rental of servers powered by Nvidia Corp. chips during the three months ended in August, the company only managed about $125 million in gross profit. In some cases, Oracle was losing “considerable” amounts of money on its rentals of smaller quantities of Nvidia chips, including both new and old graphics processing units.

The heavy spending required to acquire chips and build out data center capacity has weighed on Oracle’s overall gross margin, which excludes operating expenses. In its most recent earnings report, Oracle’s gross margin was 67.3%, the lowest in more than a year, according to data compiled by Bloomberg.

Oracle case is a small example of how most of the AI use cases are non-profitable. As per a recent MIT study, "The GenAI Divide: State of AI in Business 2025," found that 95% of generative AI pilot projects fail to produce a measurable return on investment or significant business impact. Only 5% of deployments delivered meaningful revenue growth.

Another issue is the circular investments being made by the AI ecosystem companies in their balance sheets. A wave of deals and partnerships are escalating concerns that the trillion-dollar AI boom is being propped up by interconnected business transactions. For e.g. Nvidia Corp. agreed to invest as much as $100 billion in OpenAI to help fund a data-center buildout, with OpenAI committing to fill those sites with millions of Nvidia chips.

OpenAI struck a similar deal with Nvidia rival Advanced Micro Devices Inc. to deploy tens of billions of dollars’ worth of its chips, with OpenAI poised to become one of AMD’s largest shareholders.

The recent wave of deals and partnerships involving the two are escalating concerns that an increasingly complex and interconnected web of business transactions is artificially propping up the trillion-dollar AI boom. 

To summarise, markets might wait for one or two more quarters to give the magnificent 7 names an opportunity to show revenues are consummate to the scale of AI capex but if it does not show up in top line, which we believe is the case likely, we might then see a titanic melt down in these names.

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