The financial media will digress to one of its favorite games, “Is this a bubble or is AI for real?” The answer is yes. AI’s economic promise feels real, obvious even. And that is what makes a bubble inevitable. Bubbles emerge in unexpected ways, for unpredictable reasons. Big bubbles inflate in similar ways. A transformative innovation emerges, capital rushes in, valuations increase, speculators add fuel, the atmosphere heats, the bubble grows, the cheap capital supercharges growth, and the wheel turns. Of course we are in a bubble now — how could we not be after the mind-blowing debut of ChatGPT? AI is amazing, but the bubble-multiplier effect is very much in play. According to the Economist: The combined market value of Alphabet, Amazon, and Microsoft has jumped by $2.5trn during the ai boom. [This value creation] is 120 times the $20bn in revenue that generative AI is forecast to add to the cloud giants’ sales in 2024. That was in March. Now it’s $3 trillion. So the market is valuing AI revenue at 150x. Pre-AI, Microsoft was valued at about 10x revenue, Alphabet at 5x, and Amazon at around 4x. Growing into this AI multiple will require these businesses to find another $500 billion in annual revenue among them, in addition to continued expansion of their non-AI business, the equivalent of adding more than Alphabet’s revenue.