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HomeMarket NewsStocks NewsAI valuations may be unsustainable, says Milken Institute Economist William Lee
William Lee, Chief Economist and Executive Director at the Milken Institute, compared the current AI boom to the dot-com era, when massive fibre-optic networks were built but went largely unused until prices dropped sharply. He warned that the AI sector could face a similar situation today.
By Alpha Desk October 13, 2025, 11:22:59 AM IST (Published)
The soaring valuations in the artificial intelligence (AI) sector may be unsustainable, and a market pullback could be on the horizon, warned William Lee, Chief Economist and Executive Director at the Milken Institute.
While expressing his long-term belief in AI's productivity-enhancing potential, which he sees as a driver of 'American exceptionalism', Lee cautioned that the current market dynamics suggest that recent "bubble talk might have some substance."
Lee argued that the pricing of AI technologies appears to have gotten ahead of tangible results. "We haven't really seen the applications that are productivity-enhancing," he said, stating that much of the current investment has been directed toward building infrastructure.
He drew a parallel to the dot-com era, where extensive fibre-optic cables were laid but remained underutilised until much lower prices prevailed. A similar scenario could unfold in the AI space.
According to Lee, a catalyst for a correction could be the recent geopolitical friction over China's control of rare earth supplies. He suggested that this development might prompt investors to reconsider their positions. "We might as well take our profits and cut back on some of these multiples until we see some real improvements in the applications," he said, describing the potential investor sentiment.
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Furthermore, Lee stressed the critical importance of China to the global AI ecosystem, cautioning against moves that could isolate the market. He pointed out that a significant portion of AI innovation is emerging directly from China.
Citing warnings from Nvidia's Jensen Huang, Lee emphasised that American technology companies cannot afford to abandon the Chinese marketplace, as approximately half of the world's AI innovators and researchers are located there.
For the entire interview, watch the accompanying video
