AI's Rapid Rise in 2025: A Turning Point or Bubble on the Brink?

The year 2025 is closing with a surge in artificial intelligence (AI) adoption, raising questions about whether this rapid growth marks a historic turning point or the beginning of a speculative bubble. As AI continues to transform industries and daily life, experts and investors are divided on its long-term sustainability.

Market Valuations Reach Historic Highs

The US stock market recently hit a valuation that has only been seen once before in history, with the cycle-adjusted price-earnings (CAPE) ratio reaching 40. This level, last observed in December 1999 during the dot-com bubble, suggests a potential market correction may be imminent. The S&P 500 peaked at 6,901 on December 11, and if it regains and surpasses this level, it will signal a significant shift in investor confidence.

Unprecedented AI Adoption

According to a state of AI report from Air Street Capital, paid business subscriptions for AI doubled in 2025, from 22% to 44% of companies. A McKinsey & Co survey indicates that 88% of businesses are using AI, both paid and unpaid. ChatGPT, a popular AI chatbot, now processes approximately 2.5 billion requests per day. Nearly half of US adults use AI for information searches, with 74% of those under 30 relying on it regularly.

Investment and Infrastructure Strain

Spending on data centers, which power AI computing, is expected to exceed $4.5 trillion. This surge in demand is putting immense pressure on electricity and water supplies, contributing to record-high coal consumption. The rapid investment in AI infrastructure raises concerns about the sustainability of these returns, as the required financial outcomes seem increasingly unlikely.

Historical Parallels and Future Outlook

Historically, technologies that have experienced similar levels of enthusiasm and investment, such as railways, electricity, and the internet, have eventually led to transformative changes but also significant market corrections. US investor Howard Marks notes that bubbles are characterized by both the behavior of companies within the industry and the actions of investors. While the excitement and capital provided by investors are crucial for technological advancement, the eventual disappointment in returns is a common outcome.

References

• Is 2025 ending with an AI bubble? We could be at a turning point in history - ABC News