In late January, a sudden deluge of competition from China triggered a massive Nvidia (NASDAQ: NVDA) stock sell-off when the release of DeepSeek’s R1 and Alibaba’s (NYSE: BABA) Qwen 2.1 threatened to collapse NVDA below $100.
At press time on March 25, 2025, the e-commerce and technology giant is once again having an impact on semiconductor equity, albeit for more vicarious reasons.
Specifically, Alibaba Chairman Joe Tsai warned that the extensive buildup of data centers for the purposes of further artificial intelligence (AI) development may be creating a dangerous bubble.
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Why AI data centers might be a dangerous bubble
According to Tsai, expenditure on infrastructure has been as indiscriminate as it is extensive, leaving the possibility that what gets established will be bereft of users and customers for a long time.
Alibaba is itself participating in the ravenous development as its announcement that it would go all-in on AI has been driving significant stock market success, yet it is far from the only participant. The biggest infrastructure program by far The Stargate Project, announced by President Donald Trump earlier in 2025.
Though there are yet to be any definitive signs of the bubble bursting, Nvidia stock’s one-week price chart demonstrates that investors are nervous. Specifically, shortly after the warning was widely disseminated in a Bloomberg article, NVDA shares plunged nearly 2%.
The move provided an abrupt end to the semiconductor giant’s previous rally, though it has yet to be strong enough to erase the overall 2.17% one-week climb to $119.42.
Can the data center bubble blow up AI?
Simultaneously, even if Tsai’s stark warning proves clairvoyant, the long-term impact on AI as a sector is unlikely to be fatal.
Despite the late 1990s featuring the Dot-com bubble and ending in a crisis, the internet of today is unmeasurably larger than it was two and a half decades ago.
AI is likewise likely to eventually vastly outgrow even the currently planned infrastructure, even if there is a period in which data centers are sitting dormant and bleeding money.
Still, if an AI infrastructure bubble exists, many investors will probably suffer catastrophic short-term losses as it deflates.
Featured image via Shutterstock
