Amidst heated speculation of an AI bubble, chip manufacturer Nvidia announced its third-quarter (July-September) results on Wednesday (November 20), beating industry expectations.“There’s been a lot of talk about an AI bubble. From our vantage point, we see something very different,” CEO Jensen Huang said on a call with analysts. “We’re in every cloud. The reason why developers love us is because we’re literally everywhere,” he added.The company recorded its highest-ever revenue of $57 billion, a growth of 62% over the previous year, with its data centre business alone recording $51.2 billion in revenue. It has also projected revenue for the fourth quarter at about $65 billion against industry expectations of $61 billion.Nvidia’s shares gained 5% in extended trading on Wednesday following the announcement, with the company set to add $220 billion in market value, Reuters reported. The results reversed a declining trend that was underway early in November, with Nvidia’s shares down nearly 8% after surging by 1,200% over the past three years. Nvidia has a stranglehold over highly-prized chips called graphics processing units, or GPUs, which crunch data for AI models. These are deployed in specialised data centres where the data crunching happens.The development could not have come at a better time. Talk of the AI boom and its unsustainability has been high, and events in recent weeks, inclined towards market correction, have forced investors to press pause.Of note has been the actions of Michael Burry, best-known today as the American investor who predicted the 2008 recession before it unfolded, and “shorted” the mortgage bond market, walking away with a tidy $800 million. On October 27, he announced the closure and delisting of his hedge fund, Scion Asset Management. More crucially, through his cryptic social media posts, he has lent fuel to the narrative that the ‘AI bubble’ is poised to burst, a theory that has gained more credence with recent actions by leading industrialists.Sometimes, we see bubbles.Sometimes, there is something to do about it.Sometimes, the only winning move is not to play. pic.twitter.com/xNBSvjGgvs— Cassandra Unchained (@michaeljburry) October 31, 2025In late October, OpenAI CEO Sam Altman backtracked on a company statement seeking a potential bailout by the US government. Last week, it was reported that venture capitalist and Palantir founder Peter Thiel had sold off his entire stake in Nvidia by September 30, following a similar divestment announced by Softbank last week.On Tuesday (November 18), Google (and Alphabet) CEO Sundar Pichai characterised the growth of artificial intelligence as an “extraordinary moment”, but said there had been some “irrationality” in the current AI boom. When asked by the BBC how Google was placed in light of the AI bubble and its potential burst, he said the company was well-placed to weather the storm. “I think no company is going to be immune, including us,” he cautioned.Story continues below this adFor the uninitiated, what is an economic bubble? What could happen if a bubble were to burst? How does one make sense of the speculation about a supposed AI bubble?What is a bubble?Quite simply, an economic bubble refers to the period when the current market price of an asset of interest tremendously exceeds its intrinsic value, usually driven by optimistic market behaviour. The fragility becomes known once the asset’s price hits a certain peak, or following a specific event that causes investors to press pause before likely resorting to panic selling in a bid to recoup their funds.The nature of speculative behaviour, or its duration, as well as the reasons why an optimistic approach to the market makes way for pessimistic, bearish behaviour, all vary depending on the nature of the asset itself. While economists have disagreed on what causes a market bubble, the sequence indisputably traces to a theory put forth by the post-Keynesian economist Hyman Minsky.The Financial Instability Hypothesis, which he proposed in a working paper for the Levy Institute in 1992, suggests that “stability breeds instability”. Simply, it suggests that a prolonged period of economic stability may encourage speculative behaviour, increasing the likelihood of a market crash.Story continues below this adThe Minsky Moment refers to such a period when the market blinks and recognises the instability of the entire structure, which was enabling borrowing to finance risky investments with the assumption that asset prices will indefinitely continue to rise. This turning point, wherein investors and lenders (usually banks) begin to backtrack and try to gather their funds, will likely trigger panic, and in turn, a real economic crisis marked by falling prices, rising unemployment, and stalled credit.The collapse of the dot-com bubble in the 2000s is regarded as a classic Minsky moment, with several investors channelling funds into internet-based start-ups without a proven business model.In a speech in 1996, then-chairman of the Federal Reserve, Alan Greenspan, questioned the nature of “irrational exuberance” that had captivated financial markets, a comment that is now widely seen as foreshadowing the dot-com bust. Markets instantly reacted to this speech, but regained lost ground, only to lose that and even more three years later.Some analysts fear a similar situation is unfolding in the AI space currently. However, even if a bubble is underway, it may not be apparent until after an eventual bust and associated economic downturn, given how market prices tend to dissociate from real-world prices.Story continues below this adWhy are there concerns about an AI bubble?Nearly three years since ChatGPT was formally introduced to the world, the AI space has continued to grow undeterred. A report by the UN Conference on Trade and Development estimated this April that the market for AI will grow 25-fold from $189 billion in 2023 to $4.8 trillion by 2033.Nvidia, currently the biggest player, has surpassed the $5 trillion valuation mark at the end of October, after crossing $4 trillion in July.Also in Explained | Is a market crash looming? AI-fuelled rally in US stocks could unwind, impending bust could singe global marketsAs of Wednesday (November 19), OpenAI was estimated to be worth $750 billion based on a Reuters analysis of Softbank holdings, while Anthropic’s new deal with Microsoft and Nvidia on Wednesday has boosted its valuation to $350 billion. Established tech titans are also doing fairly well, with Microsoft and Apple amassing a $4 trillion market valuation each, while Berkshire Hathway’s $4.9 bn purchase of Google shares boosted the latter’s valuation to $3.5 trillion.Concerns about the sustainability of this boom have been raised in light of recent investment announcements.Story continues below this adFirst, a Bloomberg report in October highlighted the circular nature of financing driving this boom, meaning the same money was virtually being passed around several companies, even as each company’s individual valuation soars. The report highlighted the outsized role of two players – Nvidia and OpenAI, who have both announced investments to the tune of billions of dollars with a reciprocal financing plan.For instance, in September, Nvidia announced it would invest $100 billion into OpenAI to build data centres as part of the latter’s “Stargate” AI infrastructure plan, envisioned in January with a cost of $500 bn. The chipmaker’s investment featured a reciprocal commitment by OpenAI to equip these data centres exclusively with Nvidia chips.Secondly, some analysts have expressed caution over the outsized emphasis on Nvidia, given its aggressive deal-making – investing $24 billion in deals with companies in the larger AI ecosystem in 2025, according to Pitchbook data. That it is the most valuable company while only serving a vital infrastructural input, and not the end service used by consumers, has also been curious.Third, there has been no proven impact yet for the AI use-case as a profit-making business model. The boom seems to be driven entirely by optimism around capacity generation, while its potential application remains largely unproven, thus its scope for monetisation. There is also an argument to be made for sustainable capacity generation, given reports of electricity consumption by data centres, as well as the negative externalities (water shortages, erratic power supply) reported to the residents of towns around such areas.Story continues below this adFourth, the case for AI has been limited to incremental “workslop,” described as AI-generated content that “masquerades as good work, but lacks the substance to meaningfully advance a given task.” (“AI-Generated ‘Workslop’ is destroying productivity”, Niederhoffer, Kellerman et al, HBR, September 2025) OpenAI’s stated goal of attaining Artificial General Intelligence also seems to be far off, something that CEO Sam Altman acknowledged in August.