Alibaba is warning of an Ali-bubble in AI buildout

A growing chorus of high-profile tech executives is warning that the astronomical spending on AI infrastructure may be outpacing actual demand, creating conditions for a potential market correction. While companies have committed hundreds of billions of dollars to building data centers and developing AI models, Alibaba‘s chairman has joined those questioning whether the industry is becoming detached from market realities, suggesting the early signs of a bubble that could leave massive investments without sufficient customers.

The warning signs: Alibaba Chairman Joe Tsai expressed concern that the AI industry is showing early indicators of a speculative bubble, particularly in data center construction.

• During a Hong Kong event on Tuesday, Tsai noted many AI infrastructure projects are being built “without clear customers in mind,” causing Alibaba shares to drop nearly 4% following his comments.
• Despite his concerns, Alibaba itself has committed to spending $52 billion on AI development over the next three years, highlighting the competitive pressure companies face to invest heavily regardless of reservations.

Behind the numbers: Tsai specifically questioned the necessity of the massive investments being announced in the United States.

• “I’m still astounded by the type of numbers that’s being thrown around in the United States about investing into AI,” he said, referencing figures in the hundreds of billions of dollars.
• He believes companies are “investing ahead of the demand that they’re seeing today” based on projections of “much bigger demand” that may not materialize.

The big picture: Major tech companies and government initiatives have announced staggering commitments to AI infrastructure that could prove unsustainable if demand doesn’t keep pace.

• Amazon has committed $100 billion for AI infrastructure, Meta pledged $65 billion this year, and Google parent Alphabet plans to invest $75 billion.
• President Donald Trump recently announced a $500 billion AI infrastructure project called Stargate, with participation from OpenAI, SoftBank, Oracle, and Abu Dhabi’s MGX fund.

Market disruption: The emergence of Chinese startup DeepSeek earlier this year demonstrated that advanced AI models could potentially be developed at a fraction of established players’ costs.

• DeepSeek’s announcement of a reasoning model comparable to OpenAI’s most advanced offerings triggered a market selloff exceeding $1 trillion.
• This disruption raised questions about whether investors had overvalued companies like OpenAI and Meta, potentially signaling that the economics of AI development are fundamentally shifting.