From healthcare to manufacturing, every industry is harnessing the power of artificial intelligence (AI) today. Even our grocery shopping is picked and bagged by AI-driven robots in some cases.

The hype and investment around AI rivals what we saw in the dotcom era but that bubble burst, with the loss of thousands of jobs and wealth. Could the same happen with AI?

It’s certainly possible. The valuations of the ‘magnificent seven’ tech giants including Google, Microsoft and Amazon, have boomed in the last two years while billions have been channelled into AI start-ups, many of which have little more than a prototype.

What could it all mean for your small AI business?

Signs that we’re in a bubble

AI isn’t a fad, but there are signs the market is overheated:

Valuations detached from revenue: Some small AI businesses are attracting big valuations with no revenue and while the ‘magnificent seven’ have huge revenues to rely on, it is possible their future profits from AI are over-valued.
Crowded product categories: There are a lot of new companies using open-source models to build niche AI solutions, but the market may get too crowded and it’s possible some won’t succeed.
Hype outrunning reality: AI promises efficiency gains, but not all will materialise. In some cases, humans will always prefer to deal with humans so regardless of cost savings, fully autonomous robots may not take off.

What a burst bubble will look like

Speaking to the BBC, even the head of Google recently said there were “elements of irrationality” in the current trillion-dollar AI investment. There’s no guarantee it will burst but market correction seems inevitable.

The biggest companies would survive, especially where they have incorporated AI into their wider service offering as Microsoft has done with Copilot.

The greater risk lies with new companies that rely on investment from venture capitalists and private equity. Those investors may want to offload the risk and we’ll likely see a reduction in the number of smaller AI companies.

How can small AI businesses survive?

A burst doesn’t mean all small AI businesses will fail.

Where they deliver noticeable returns on investment, there will always be demand.

Businesses developing stable and reliable AI models can survive, while those creating highly specialised or niche models are also more likely to succeed because they’ll be harder for competitors to replicate.

Businesses that take opportunities to build AI models with humans built in also stand a stronger chance because we all want greater efficiencies without losing creativity or the human touch.