Google DeepMind CEO Demis Hassabis thinks this one area of the tech industry is probably in an AI bubble

Google DeepMind CEO Demis Hassabis thinks there’s one particular area of the technology industry that should have investors worried about an AI bubble: startups.

When asked about the possibility of a looming bubble during a recent podcast appearance, Hassabis told Professor Hannah Fry that early-stage startups raising huge sums are a serious cause for concern.

“There is a lot of talk right now about AI bubbles,” he said. “I think there are parts of the AI ecosystem that are probably in bubbles.”

“One example would be, you know, just seed rounds for startups that basically haven’t even got going yet, and they’re raising at tens of billions of dollars valuations just out of the gate,” Hassabis added.

“It's sort of interesting to see. How can that be sustainable? My guess is probably not, at least not in general.”

Hassabis isn’t the first industry stakeholder to raise the alarm over huge startup valuations in the AI space. Earlier this year, a report from Silicon Valley Bank (SVB) warned about the rise of ‘zombiecorn’ startups – those that raise vast sums and will ultimately fail as they have no clear route to market.

SVB noted that the long-term viability of many high-flying startups in the AI space is questionable, with many recording poor revenue growth and collapsing quickly post-funding.

Speaking to ITPro at the time, Tom Glason, CEO and co-founder at Scalewise, said the report showed rampant generative AI hype among venture capital (VC) firms was creating a new wave of doomed startups.

“The AI boom has fueled a wave of overfunded startups that look healthy on the surface, but are commercial hollow underneath,” he told ITPro. “These so-called ‘zombiecorns’ raise huge rounds but fail to build sustainable revenue or viable unit economics.”

Big tech might swerve an AI bubble

Elsewhere, Hassabis suggested he’s less concerned about an AI bubble impacting big tech providers, mainly because there’s “a lot of real business underlying” growth in this domain.

However, he did point toward a potential “overcorrection” as a result of the huge hype and subsequent investment in the space.

“I think for any new, unbelievably transformative and profound technology, of which, of course, AI is probably the most profound, you're going to get this over correction in a way,” he said.

“When we started DeepMind, no one believed in it. No one thought it was possible. People were wondering what’s AI for anyway? And then now, fast forward 10-15 years, and obviously it seems to be the only thing people talk about in business,” Hassabis added.

“It’s almost an overreaction to the underreaction. So I think it’s natural. I think we saw that with the internet, with mobile, and I think we’re seeing, or going to see it, again with AI.”

Google is insulated from a potential bubble

Notably, Hassabis suggested that Google will be insulated from an AI bubble if that situation arises.

“I don't worry too much about, are we in a bubble or not, because from my perspective, as you know, leading Google DeepMind and with Alphabet as a whole, our job, and my job, is to make sure we either way, we come out of it very strong, and I think we're very well positioned,” he told Fry.

A key factor here, he noted, is the diversity across the tech giant’s products. While Google has rolled out AI features across a range of domains, including Workspace, Chrome, and Search, AI isn’t the sole focus or money-spinner for the firm.

“I think we are tremendously positioned either way. So if it continues going like it is now, fantastic, we’ll carry on,” Hassabis added.

“If there’s a retrenchment, fine, I think we’re in a great position because we have our own stack with TPUs. We also have all these incredible Google products and the profit that all makes.”

Hassabis’ bullish position on Google’s outlook in the event of an AI bubble runs counter to recent comments from CEO Sundar Pichai.

During a recent interview with the BBC, Google chief executive Sundar Pichai told the broadcaster “no company is going to be immune, including us”.

Pichai noted that current hype and surging investment in the technology bears some similarities to the early days of the web, with rampant “excess investment” that could come back to haunt some big tech providers.

Again, though, the party line at Google appears to be that the tech giant is well positioned to withstand any potential market chaos in the event of a bubble bursting.

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