AI stocks face a reality check after a $1.5 billion implosion | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

It’s safe to say that the AI boom is beginning to feel a lot like a bubble.

Mega-cap stocks like Nvidia (NVDA) , Microsoft, and Alphabet are shelling out billions at an eye-watering scale in advancing their AI efforts.

For perspective, Nvidia alone now sits at $4 trillion market cap, representing roughly 8% of the S&P 500.

Also, Microsoft is guiding for a $30 billion capex quarter, Google guides for $85 billion in 2025, and total AI infrastructure spending is expected to reach $375 billion this year.

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At the same time, reports show that venture capital is chasing AI so hard that it’s now making up to 50% of the deal flow, even with 95% of pilots failing to show ROI. The result is a distorted funding environment, favoring buzzwords over business models.

Now, one so-called “AI disruptor” that raised a whopping $1.5 billion has quietly gone bust, and the timing couldn’t have been louder. The money’s still flowing, but so are the warning signs.

Builder.ai’s rise and collapse exposes cracks in the AI gold rush.

Image source&colon; Annabelle Chih/Bloomberg/Getty Images

AI valuations flash classic bubble signs as warnings pile up

AI’s investment surge led to record profits and capex at the top, but the valuations are drawing more scrutiny than ever before.

Tech currently accounts for 37% of the U.S. market, surpassing the dot-com peak, while Bank of America’s bubble dashboard shows that pricing multiples, including price-to-book ratios, have blown past 2000 levels.

Though Wall Street is still backing a multi-year AI tailwind, tolerance for earnings or execution missteps is thinning out at an alarming pace. Moreover, a recent stumble in AI bellwethers has added to the tension.

Voices of caution on AI investment are growing louder:

Howard Marks (Oaktree): “U.S. stocks are in the early days of a bubble,” indicating frothy psychology and inflated pricing.
Michael Hartnett (BofA): “Bigger retail, bigger liquidity, bigger volatility, bigger bubble.”
UBS: The popular research firm feels AI stock valuations are nearing dot-com levels.
Sam Altman (OpenAI): Maverick tech entrepreneur cites “insane” AI startup valuations and feels “someone’s gonna get burned.”

The overall message is clear that the build-out is real, but the market’s patience for hype without results is thin.

Builder.ai’s collapse exposes cracks in the AI boom

The $1.5 billion collapse of Builder.ai is a massive shock to the AI bulls, highlighting how fragile the current boom has become.

Once touted as a powerful future unicorn, Builder.ai filed for bankruptcy proceedings in Delaware after being exposed for overstating sales.

Though it claimed $217 million in sales last year, internal figures showed it brought home just $51 million. Also, it left a whopping $75 million unpaid to Amazon Web Services.

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For perspective, the up-and-coming startup was backed by Microsoft, Qatar’s sovereign wealth fund, and media mogul Jeffrey Katzenberg.

Moreover, its hyped-up “AI product manager” named Natasha, pitched as a revolution in software development, came nowhere close to the promise.

Back in February, founder Sachin Dev Duggal stepped down from his post after the board discovered financial irregularities. He’s since returned as an AI consultant, though his new site currently lacks content.

Nonetheless, the debacle has investors posing serious questions about which companies are truly utilizing the power of AI, and which ones just talk like it.

As one skeptic, David Gerard of Pivot to A.I. (a debunking website), told The New York Times, “If you want funding, you just say a bunch of A.I. words….You don’t have to actually have A.I.”

In an overheated market, this is exactly the event that leads to a reset.