According to Business Insider, University of Michigan professor Erik Gordon warned in a Wednesday email that the AI investment bubble is “almost as big as the planet Jupiter” and its burst will scatter catastrophic debris everywhere. He pointed to Microsoft’s stock tumbling over 6% after its earnings beat as a direct warning, fueled by the company’s 95% year-on-year surge in investing cash to over $57 billion in six months, largely for data centers. Prior to the drop, Microsoft’s shares had roughly doubled since 2023, hitting a $3.5 trillion market cap. Other stocks soared even higher: Nvidia’s shares vaulted 13-fold to a $4.7 trillion value, over 20 times its projected revenue, while Palantir jumped 25-fold to an $375 billion valuation, about 85 times its 2025 forecast. Gordon doesn’t expect the bubble to burst in the next few months, as investor cash still props it up, but he has previously warned the fallout will be more painful than the dot-com bust.
The Warning Signs Are Already Here
Gordon’s warning isn’t just theoretical. He’s pointing to a very concrete, recent event: Microsoft’s stock getting hammered after beating earnings. That’s the canary in the coal mine. Here’s the thing: the market is no longer rewarding sheer investment. It’s starting to question the ROI. When a company pours an extra $49 billion into property and equipment—basically, data centers and chips—in six months, and the stock sells off, it means investors are getting nervous about the bill. They’re looking at that colossal cash burn and thinking, “Okay, but when do we actually see the profits from all this AI?” That shift in sentiment is huge.
The Valuation Math is Insane
Let’s talk about those numbers for a second, because they’re almost comical. Nvidia, a company making the physical hardware for this boom, is valued at over 20 times its projected revenue. Palantir? 85 times its forecasted 2025 revenue. That’s not optimism; that’s speculative mania. It assumes not just flawless execution and total market dominance, but also that there are no technological hiccups, no regulatory roadblocks, and that every dollar of AI spend will generate massive returns. History tells us that never happens. So what’s propping it up? Gordon nails it: there’s still a ton of cash sloshing around, and the tech advances are genuinely exciting enough to distract people from the shaky math. But how long can that last?
The Burst Won’t Be Neat
When Gordon says the debris will be “everywhere,” he’s not exaggerating. This isn’t a niche sector. AI capital expenditure is woven into the balance sheets of the world’s biggest companies—Microsoft, Google, Amazon, Meta. A severe correction wouldn’t just hit the pure-play AI stocks. It would crater the tech-heavy indices, smash pension funds and institutional portfolios, and wipe out the savings of retail investors who FOMO’d in at the top. The dot-com bust was brutal, but it was arguably more concentrated in companies with no revenue. This time, the overinvestment is happening inside profitable giants, which makes the potential contagion even trickier. The fallout could freeze corporate investment in all sorts of areas, not just tech.
So What Comes Next?
Gordon gives us a timeline: not the next few months. The bubble still has air. But the Microsoft reaction is a clear signal that the phase of “spend at all costs” is being scrutinized. The next phase will be a brutal focus on real, tangible results and efficiency. Companies will need to show that their AI tools are actually generating profit, not just burning it. For businesses implementing this tech, whether in software or on the factory floor, the focus will sharply turn to proven, reliable solutions that deliver a clear ROI. The era of easy money for anything labeled “AI” is ending. The reckoning is coming, and it’s going to separate the truly transformative tech from the overhyped junk.
