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Overpriced AI companies, not an AI bubble
In the housing bubble, adjustable-rate mortgages let everyone make money even though it wasn't right, and house prices were driven up for some while the assets were mispriced. In AI the asset prices are not necessarily mispriced, though the market shows a similar intensity.
There are certainly companies that have been given valuations they shouldn't have been given. Some are being acquired because they really do have distribution. Windsurf split its talent and its cap table, and there are other odd things happening in the talent wars.
What isn't a bubble is the change in how people work and how they engage with their own computers. That is a material behavior change, and businesses will be built around it.
How did adjustable-rate mortgages feed the housing bubble?
These loans started with a low introductory rate that reset higher after a few years. Borrowers who could not afford the later payments counted on selling or refinancing at higher prices. That worked while prices rose and fell apart when they stopped. The US Financial Crisis Inquiry Commission, in its 2011 report, described how lending standards and securitization amplified the collapse.
What separates a bubble from a boom?
Economists call a bubble a period when prices rise far above what fundamentals justify, driven by expectations of further rises. A boom can also be backed by real change in earnings and productivity. The dot-com crash showed that a technology can be transformative and still have mispriced companies. Amazon survived and later thrived, while many peers vanished.
Why do talent-war deals involve splitting a company?
Large firms sometimes hire a startup's leaders and license its technology instead of buying the whole company. This is often called an acqui-hire, and it can avoid the lengthy review that a full acquisition invites. The investors and remaining staff are left with a smaller company or a payout. Several such arrangements in AI during 2024 and 2025 drew attention to how they divide proceeds.
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