Erik Gordon warns of 'planet-sized' AI bubble; Microsoft slump a warning

Erik Gordon, an entrepreneurship professor at the University of Michigan’s Ross School of Business, said AI is a "planet-sized" bubble that will pummel investors and called Microsoft’s recent post-earnings slump a "warning of the burst to come," in a Wednesday email to Business Insider.

Gordon wrote that "the AI bubble is almost as big as the planet Jupiter" and warned, "When it bursts, the debris will be everywhere," saying both institutional and individual investors would be hit. He pointed to Microsoft, whose stock tumbled more than 6% after the company’s earnings beat on Wednesday and was trading around 12% lower at 12:30 p.m.

ET on Thursday — one of the sharpest intraday declines in the company’s history. Gordon blamed the drop on the company’s heavy AI spending, noting Microsoft’s net cash used in investing surged 95% year-on-year to over $57 billion in the six months to December, fueled by $49 billion in property and equipment additions such as data centers.

Prior to the slump, Microsoft’s shares had roughly doubled since the start of 2023, lifting its market value to over $3.5 trillion. He highlighted extreme AI valuations elsewhere: chipmaker Nvidia has risen about 13-fold to a market value near $4.7 trillion — more than 20 times its projected revenue for the fiscal year ended Jan.

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