The AI bubble can wait, but your exit plan can't

Forrester, the analyst firm, believes that the AI bubble is not imminent, but businesses should still prepare for potential corrections that could disrupt suppliers, contracts, and prices. The financial strength of the companies funding AI infrastructure development keeps Forrester from predicting an impending crash. More than 90% of the money used to build today's AI computing infrastructure comes from large, financially healthy technology companies using their own cash flow.

However, the risk is concentrated in a few high-strain builders and circular financing deals with AI labs. Forrester has developed an AI Bubble Model to help technology leaders monitor risks and prepare for potential corrections. The firm calculates that AI infrastructure investments only break even if AI increases US GDP by 5% by 2035, which seems unlikely given that productivity improvements could only contribute around 2 percentage points of that growth.

A recent report by management consultants Bain & Company suggests that the AI industry needs to generate $6 trillion in annual revenue by 2031 to sustain the infrastructure investments, requiring new uses beyond simple productivity enhancements. If demand doesn't meet expectations as new capacity comes online, suppliers might cut back, merge, change prices, or discontinue products, leaving customers scrambling to rebuild their AI plans around non-existent suppliers and services.

Forrester advises businesses to track AI project value, limit exposure to vulnerable suppliers, and stress-test AI plans against scenarios like key vendors ending support or AI model suppliers defaulting on payments. While oversupply alone won't determine a correction, demand – specifically enterprises finding lasting value in AI beyond productivity gains – is the biggest unknown and could lead to widespread economic disruption, according to the International Monetary Fund and the Bank for International Settlements.