Organizations that are more aware of the potential value and more cautious about how they adopt current AI technologies more likely to weather AI bubble burst, says academic
As predictions around the “AI bubble” – and what will happen when it bursts – continue, organizations around the world have their eyes on the seven U.S. tech giants at the centre of the discussion.
The “Magnificent Seven” – Amazon, Apple, Microsoft, Nvidia, Tesla, Alphabet and Meta Platforms — have an unprecedented hold on the global economy, making their possible devaluation seemingly catastrophic to consider.
As explained by Randy Goebel, professor of computing science at the University of Alberta, the current AI landscape bears striking similarities to the dot-com crash in 2000. However, there is a crucial difference in how investment is concentrated, and understanding this distinction is essential for Canadian organizations planning their technology strategies.
“There is the perception of a whole lot more money being invested than in the dot-com bubble,” Goebel says.
“What's different is that the huge volume of interests and company valuations are much more highly focused on … the technology oligarchs, especially Google and Microsoft and Open AI and Meta and Apple and a few others.”
What this means is that while a bursting AI bubble would potentially have drastic impacts on employment in the States, in Canada, where SMBs make up the majority of the workforce, the impacts will be differently felt.
Fear versus strategy in AI adoption
When discussing risks for employers of a burst AI bubble, Goebel highlights the two different reactions he has observed from Canadian organizations: those who are reacting to AI hype and a sense of FOMO (fear of missing out), and those who take a more cautious approach.
These two camps behave fundamentally differently when allocating resources, he explains. They make different hiring decisions, for example, and ultimately position themselves for either success or vulnerability when market conditions inevitably shift.
The FOMO-driven approach carries particular dangers, he adds – particularly in how it manifests within HR and talent acquisition functions; companies operating from a position of competitive fear tend to make reckless hiring and investment decisions without clear understanding of what expertise they actually need, potentially over-staffing areas that aren’t sustainable or profitable.
By contrast, Goebel has observed organizations that are “much more aware of the potential value and are much more cautious about how they adopt current AI technologies to be able to extrude value from them.”
These organizations have an advantage, he says, as their skepticism has tempered the urge to make hasty decisions about talent strategy, “So they haven't jumped off the deep end saying, ‘Oh, we have to hire 10 AI experts. We don't know what one is, but if somebody says they are one then we better hire them.”
Why the AI bubble perception exists
Part of the challenge stems from what Goebel identifies as artificially inflated enthusiasm about AI development, driven by financial incentives and narrative control that extend far beyond traditional marketing.
The venture capital ecosystem rewards hyperbolic claims about potential, and major platform companies have powerful incentives to encourage maximum adoption and investment in their products. Media coverage fans the flames, he adds, by adding to the narrative about inevitable disruption.
“There is an enthusiasm that's artificial in both investors and promoters,” he says.
“And that artificial enthusiasm creates this notion of a bubble. Whether it pops or deflates, is a different question.”
Goebel's assessment is pointed: this artificial enthusiasm is largely due to particular high-profile figures and companies whose personal brands have become intertwined with narratives of AI innovation and dominance.
“Those valuations are concentrated in such small numbers of companies, and they're so overhyped,” he says.
However, the real picture involves more choice than most realize, he notes.
Although the “magnificent seven” firms might draw most of the attention of media and investors, there are many more tech developers and innovators all around the globe who are waiting to fill in the gaps if the big guys fail: “I think the reality is … their investors will suffer the primary effects of a bubble burst or deflation. Not like in the dot-com version when there were thousands of small companies that suffered because investment just stopped.”
What happens when AI bubble ‘bursts’
Canada's vulnerability to AI market disruption deserves particular attention from organizations planning medium and long-term strategies. Unlike the U.S., Goebel explains, which has cultivated multiple technology giants capable of weathering downturns and competing at a global scale, Canada lacks homegrown AI behemoths with the scale and resources to maintain dominance.
This asymmetry means Canadian companies are inherently dependent on foreign technology platforms and vendors, with limited alternatives if primary vendors face financial stress: “We don't have a Google in Canada,” he says.
This means that companies betting heavily on specific AI vendors can face sudden vulnerability if market conditions force price increases or service reductions – the costs of switching vendors may appear low in theory, but Goebel stresses that they can be substantial in practice once integrations deepen and staff expertise becomes specialized to particular platforms.
Regional economies deserve scrutiny as well, he adds, particularly those that have built economic strategies around proximity to technology investment.
“How much of Vancouver's economy is based on Microsoft, and venture and investments in Microsoft Research north of the 49th parallel?” he says.
“I can guarantee you will find out a lot more about it if the bubble bursts and Microsoft has to reassess where and how they invest money. It's typical that these companies start to reduce the scope of their investment around the world and reconsider where and how they can recover value and stay on a trajectory of creating revenue.”
