It’s Not a Bubble, It’s a Balloon !
Booms and busts, bulls and bears, readjustments and corrections… these are just some of the terms being thrown around today in discussions about AI’s impact on markets. With AI-driven companies pushing indices upward—often to record highs—many are wondering whether this is simply another bubble waiting to burst.
History gives weight to that concern. The dot-com era showed how speculation can become a self-fulfilling prophecy, and that possibility still hangs in the air.
But the counter-argument is powerful: the AI revolution is unlike anything we’ve seen. Often described as the fifth industrial revolution, AI is set to touch every person on the planet—consumers, businesses, governments, and markets alike. Analysts estimate it could add $4.4 trillion to the global economy each year.
What makes this industrial revolution different is the unprecedented pace of change.
At its foundation are some of the world’s largest companies. Apple, Google, and Microsoft—each valued above $4 trillion. Nvidia recently surpassed a $5 trillion market cap, becoming the first publicly traded company to do so.
They are not only investing heavily across the entire AI ecosystem, they are also investing in and partnering with one another. Such circular investments are raising questions, but they further protect and insulate the balloon from bursting.
Anthropic has just netted $15bn from Microsoft and Nvidia which boosts its valuation to $350bn, but that only makes it the 3rd most valuable VC backed company. In return Anthropic will purchase $30bn in Microsoft Azure compute credits, plus a gigawatt of compute capacity provided by Nvidia chips.
Amazon has invested $8bn and will remain Anthropics main cloud provider.
Microsoft with 27% shares valued at $135bn is the largest shareholder in Open AI. Their restructure is now complete (was 32.5%) which gives Open AI new freedoms to partner and develop products with other partners (like Apples ex design head Jony Ives start up, which was valued at $6.6bn in may 2025) and defines the access Microsoft has to Open AI technology, especially when it reaches AGI (artificial general intelligence).
ARK Ventures and Fidelity have invested in all 3 LLMs (Anthropic, Open AI and xAI). Nvidia has a $100bn computing partnership with Open AI, and $2bn in xAI to sell its GPUs (Graphics Processing Units).
While these major LLM players continue to attract huge funding rounds, OpenAI is now the world’s most valuable startup at $500 billion, eclipsing giants like SpaceX, the momentum isn’t limited to them.
AI startups are fuelling venture capital activity, deal making, record-breaking valuations and are drawing interest from private investors. In the U.S. AI accounts for 64% of total deal value and nearly 40% of all transactions.
The trend is global. In the Middle East and North Africa, AI startups secured $1.5 billion in the first half of 2025. Start up deals in APAC rose 18.6% year on year.
European deal value increased 19% to $22bn which masks that it is heading for the worst year in a decade for fundraising. AI was 40% of funding year to date
Nvidia invested in 59 start up s (by oct 55 in 2024)
The economics of AI startups are fundamentally different—and compelling. Many are “global-first” companies, selling into twice as many markets as previous tech waves. They reach $1M ARR four months faster than the fastest-growing SaaS companies did. Their growth is propelled by deep adoption and innovative monetization models.
In short, these companies are not building solutions in search of problems. They are creating products that customers already love—laying the groundwork for tomorrow’s economies.
AI is also stimulating adjacent sectors. Energy investment is up 10–15%, and AI-powered search is disrupting established internet dynamics and long-dominant players.
There is another, less discussed force inflating the AI “balloon”: sovereign capital. Government investment is now the second-largest source of funding in AI—running at twice the previous record set in 2024. Investing in and developing the AI supply chain has become geopolitical.
Sovereign capital in AI is reported to be a trillion $ “frontier”. Between January to August 2025, twice as many sovereign wealth funds participated in deals than last year worth $46.6 bn. 93% of that ($43.3bn) went to US start ups.
Countries are racing to secure national control over critical technologies, supply chains, global influence, and economic competitiveness. Governments are no longer passive regulators. The EU is revisiting the AI Act, easing back on personal data use regulations to accelerate growth, and there are calls for ‘normal’ people to be able to invest in AI.
Nations are building entire AI stacks—chips, models, data centres, and energy infrastructure to power them. Nvidia has pledged £2bn to the UK AI start up ecosystem, plus £11bn to help develop the countries infrastructure, like super computing.
These are multi-year strategic commitments tied to national security and promoting industrial strength. They come with large-scale procurement guarantees, effectively insulating investments and attracting more capital. Global capitalism is being rewritten, but it is robbing Peter to pay Paul – other private market investments are cooling. Capital is flowing unevenly between funds. For example, it is noted that private markets are de coupling from the S&P 500.
At the moment AI is considered a safer and a strategic play.
With all that as a backdrop, no surprise governments are upping their hands in the game.
The U.S. and China are locked in a cold-war-like race for AI dominance, while the Middle East positions itself as a neutral global hub as a deliberate diversification strategy. Governments are using their power to influence where they can. China has ruled that state funded data centres can only use domestically made AI chips. Such intervention is only going to increase.
These are high-stakes contests—and no nation intends to lose.
It would therefore not be difficult to argue, with the all the interwoven strands that AI is now to big to fail. It won’t be allowed to fail. That balloon is made of pretty thick material and it’s being filled with hot air which will continue to make it rise.
The growth of use of AI is only going to increase. Businesses are just at the start of the AI adoption curve. Real world business applications and use cases are emerging every day. Adopting, adapting and implementing AI in businesses is what informed.ai does.
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