One of Britain's most respected technology investors has issued a stark warning about the artificial intelligence sector, pointing to "disconcerting" signals that suggest a dangerous market bubble is forming.
Eileen Burbidge, a partner at London-based venture capital firm Passion Capital and former chair of the government's Tech City advisory group, told The Guardian that current market conditions bear worrying similarities to the dot-com bubble of the late 1990s.
Valuations Detached from Reality
"We are seeing valuations that are completely detached from any kind of fundamental business reality," Burbidge stated. "Companies with little more than an AI-powered PowerPoint presentation are attracting billion-dollar valuations that defy conventional investment logic."
The warning comes as AI-related stocks have experienced explosive growth over the past two years, driven by excitement around generative AI technologies like ChatGPT. However, Burbidge suggests the market enthusiasm may be getting ahead of itself.
Parallels to Dot-Com Era
Drawing direct comparisons to the dot-com crash, Burbidge noted that many current AI companies lack sustainable business models, proven revenue streams, or clear paths to profitability. "During the dot-com bubble, we saw companies adding '.com' to their names and seeing their valuations triple overnight. Today, we're seeing the same phenomenon with 'AI' prefixes."
She expressed particular concern about retail investors piling into AI stocks without fully understanding the risks involved. "When everyday investors start chasing hype rather than fundamentals, that's usually a sign that we're in dangerous territory."
London's Position in the AI Landscape
While acknowledging London's growing importance as a global AI hub, Burbidge cautioned that the city's tech sector isn't immune to broader market forces. "London has developed an incredible AI ecosystem with world-class talent and innovation, but we need to ensure that sustainable growth isn't undermined by speculative excess."
The investor's comments come amid increasing scrutiny of AI company valuations, with several high-profile startups experiencing significant valuation markdowns in recent months as investor sentiment begins to shift.
Call for Caution and Due Diligence
Burbidge urged both institutional and retail investors to exercise greater caution and conduct thorough due diligence before committing capital to AI ventures. "The transformative potential of AI is real and profound, but that doesn't mean every company claiming to be an 'AI company' deserves a sky-high valuation."
She emphasized that while the technology itself represents a genuine breakthrough, the investment landscape requires careful navigation. "We need to separate the truly innovative companies building sustainable AI businesses from those simply riding the hype wave."
