Demand for AI-related hardware, especially GPUs, far exceeds supply.

Artificial intelligence (AI) is widely considered a revolutionary technology that is driving growth in various sectors and triggering a surge in demand for specialty hardware, especially from companies like Nvidia. According to ForbesNvidia’s share price has more than tripled in a year. Other tech giants that have invested heavily in AI, such as Google and Microsoft, have also seen big gains. Along with the excitement, however, concerns have also grown about the sustainability of the AI ​​boom, raising the specter of a possible bubble bursting.

The rise of Nvidia: From chip manufacturer to AI giant

Nvidia has become the poster child of the AI ​​boom, largely due to its dominance in the graphics processing unit (GPU) market, which is essential for AI training and inference tasks. In June 2024, the company briefly became the world’s most valuable company, dethroning Microsoft, largely due to the soaring demand for AI chips. Its market capitalization reached $3.33 trillion due to the rapid rise in its stock price. Nvidia’s GPUs are driving the development of AI models and enabling breakthroughs in machine learning, natural language processing, and other cutting-edge technologies.

However, Nvidia’s meteoric rise has also raised concerns. Analysts have pointed out that much of Nvidia’s value is based on the belief that the economic potential of AI will continue to grow exponentially. Some fear that if that expectation doesn’t materialize, Nvidia stock could lose significant value, potentially signaling the bursting of the AI ​​bubble.

Demand and supply dynamics

Demand for AI-related hardware, especially GPUs, far exceeds supply as companies around the world invest heavily in AI infrastructure. Major cloud service providers, often referred to as “hyperscalers,” have placed huge orders for Nvidia’s GPUs in hopes of bolstering their AI capabilities. This rush has caused supply chain bottlenecks, leading to rising prices and longer delivery times for key components.

Despite the high demand, some industry insiders question whether this level of investment is sustainable. Hedge fund Elliott Management, for example, said it was “skeptical” that major technology companies would continue to buy the chipmaker’s graphics processors in such large quantities and that AI “is overvalued and many applications are not yet ready for prime time,” according to a Financial Times report. The company also pointed out that AI technology consumes significant amounts of electricity, making some applications prohibitively expensive in the long run.

Electricity demand and sustainability concerns

Another critical issue is power consumption associated with AI technologies. Training large AI models requires enormous computing power, which in turn consumes enormous energy resources. Data centers housing thousands of GPUs must be continuously cooled and powered, raising concerns about the environmental impact of AI expansion. Nvidia shipped 100,000 units last year, which are expected to consume 7.3 times as much energy per year.

The energy consumption of AI models is becoming a point of contention as stakeholders weigh the benefits of AI against its sustainability. Some experts believe that as AI technologies advance, they will become more efficient, thereby reducing their environmental footprint. However, others are skeptical, arguing that the demands on AI will only increase as more complex models are developed.

Economic theories and the AI ​​bubble

From an economic perspective, the concerns surrounding the AI ​​bubble are similar to those of previous technology booms. When demand for a particular technology skyrockets due to expectations of future profitability, it often leads to inflated valuations of the companies associated with that technology. This dynamic has also been observed during other periods of technological euphoria, such as the “dot-com bubble” of the late 1990s.

In the case of AI, many investors are betting big on the future potential of the technology, often without a clear understanding of how or when those investments will yield returns. The economic principle of supply and demand suggests that if AI fails to meet high expectations, the resulting disappointment could lead to a sharp correction in the market. This is especially relevant for companies like Nvidia, whose fate is closely tied to the success of AI.

In addition, competition could increase as more players enter the AI ​​hardware market, which could lead to lower prices and lower profit margins. This could further destabilize the market, especially if the expected demand for AI technologies does not materialize as expected.

Is the AI ​​boom sustainable?

The AI ​​industry continues to attract massive investment, and Nvidia’s growth has benefited significantly from this trend. However, experts warn that this rising interest may not be sustainable in the long term. Companies are spending billions on AI research, hardware and applications, yet the commercial viability of many AI solutions remains uncertain. In addition, the power requirements and environmental impact of AI technologies present additional challenges.

Currently, artificial intelligence is the hottest trend in the technology industry, and Nvidia is at the center of this boom. But as the history of previous tech bubbles has shown, rapid growth can sometimes be followed by an equally dramatic collapse.