Alibaba Head Warns AI Industry Is Showing Signs of Bubble

For years now, experts have warned of an AI bubble set to burst.

So far, companies have continued to pour tens of billions of dollars into building out massive data centers to meet the demands of increasingly power-hungry AI models.

Whether the sector will continue to grow or find itself in for a rude awakening is anyone's guess. But something striking is that we're starting to see even tech executives worried that the massive spending could collapse under its own weight. Sluggish demand could struggle to keep up with a rapidly rising supply side, a lopsided equation that has executives freaked out.

Despite having committed to spend more than $52 billion on AI development over the next three years, Chinese tech giant Alibaba's chairman Joe Tsai is now warning of a potential bubble starting to form in AI data center construction, Bloomberg reports. During an event in Hong Kong on Tuesday, Tsai said that many of these projects are being constructed without clear customers in mind.

"I start to see the beginning of some kind of bubble," Tsai said, as quoted by Bloomberg.

Alibaba shares slid by almost four percent today in response to the news.

Perhaps one of the biggest warning signs so far was the explosive emergence of Chinese startup DeepSeek, which left Silicon Valley in shambles after creating a top-tier AI at a tiny fraction of the cost of its Western counterparts.

The company's announcement of its reasoning model, which could keep up with OpenAI's most advanced offerings, triggered a more than $1 trillion selloff, with spooked investors wondering whether they had grossly overpaid the likes of OpenAI and Meta for years.

Despite the massive shakeup, companies continue to pour astronomical sums into the construction of data centers. Just weeks into his second term, president Donald Trump announced a behemoth $500 billion AI infrastructure project, dubbed Stargate, with significant buy-in from OpenAI, investment company SoftBank, tech giant Oracle, and Abu Dhabi state-run AI fund MGX.

Last week, news emerged that the project's first data center complex in the small Texas city of Abilene would have enough space for as many as 400,000 Nvidia AI chips, which would make it one of the biggest known clusters of AI computing power when completed by mid-2026.

But to Tsai, it remains to be seen whether that kind of spending is actually warranted.

"I start to get worried when people are building data centers on spec," he said this week. "There are a number of people coming up, funds coming out, to raise billions or millions of capital."

Outside of Trump's Stargate, Amazon committed $100 billion to build out AI infrastructure. Meta CEO Mark Zuckerberg has pledged $65 billion for this year, while Google parent company Alphabet will invest $75 billion.

To Tsai, that could be a terrible idea in the long run.

"I’m still astounded by the type of numbers that’s being thrown around in the United States about investing into AI," he said at this week's event.

"People are talking, literally talking about $500 billion, several 100 billion dollars. I don’t think that’s entirely necessary," he added. "I think in a way, people are investing ahead of the demand that they’re seeing today, but they are projecting much bigger demand."

More on AI overspending: Microsoft Backing Out of Expensive New Data Centers After Its CEO Expressed Doubt About AI Value

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