AI Valuations May Be Unsustainable, Warns Milken Institute Economist

AI’s rapid growth may not be as sustainable as it seems, according to William Lee, Chief Economist and Executive Director at the Milken Institute. Lee warned that the current hype and soaring AI valuations could soon face a market correction. This is because real-world results have yet to match investor enthusiasm.

He noted that while AI holds huge long-term potential to boost productivity, much of today’s investment is focused on infrastructure. This focus is rather than on practical applications. Drawing a comparison to the dot-com bubble, Lee said the AI sector may also need time before its infrastructure delivers meaningful returns.

Geopolitical tensions could accelerate the correction, he added. He cited China’s control over rare earth materials, which are critical to AI technology. Such risks may push investors to take profits and re-evaluate inflated valuations.

Lee also underscored China’s vital role in the global AI ecosystem, warning that isolating the country could harm innovation. Echoing Nvidia CEO Jensen Huang’s concerns, he said American tech firms cannot afford to lose access to a market. This market contains nearly half the world’s AI talent and research is concentrated.

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