The AI field is going through a major shift — the industry that inflated valuations and sparked heavy investment is starting to burst, writes Axios. Silicon Valley giants and venture capitalists invested bns into the technology, expecting huge returns in time — but emerging AI offerings are revealing that the industry’s rapid growth is not only unsustainable, but miscalculated.

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The cracks are beginning to show: The AI boom was fueled by the promise of groundbreaking tech, and has pushed companies like OpenAI and Anthropic to extremely high valuations. These companies, with huge funding, are expected to bring new advancements, but as the market matures, the gap between AI’s inflated market value and actual returns is becoming clear. At the same time, more efficient and cost-effective models like DeepSeek are emerging, showing that the huge costs of AI development — OpenAI burned through USD 8.5 bn developing ChatGPT last year — might no longer be justified.

…and the AI stocks are wobbling: Since DeepSeek’s launch, USD 1 tn has been wiped off of US stocks. Nvidia’s stock plummeted over 15% in a day, dragging the Nasdaq Composite down 3% as investors questioned the sustainability of AI’s soaring valuations. The high-priced revenue streams of major AI companies are being brought into question as a result, raising concerns for VCs about the long-term stability of their investments.

We saw it coming, but not like this. Just last week, Forbes published an article prophesizing the bursting of the AI bubble in 2025. Of course, they didn’t mention a Chinese company pulling the switch on Silicon Valley — instead, they cited paltry returns possibly spooking investors or increasing AI regulations limiting innovation. But the overall tone was bullish, hoping that the burst bubble would bring about balance in the industry, “safely getting the best out of AI without overselling its promise.”

DeepSeek proved that AI stocks were overvalued. So why were investors happy to turn a blind eye? Markets Insider writes: “Valuation metrics like that have been easy to accept while the market’s biggest stocks faced little outside competition and could woo investors with promises of the transformative power of new technology.”

For venture capitalists, this shift is a turning point. Experts expect a forceful reckoning from investors now that hyperscalers like OpenAI, Microsoft, Amazon, and Meta have been exposed. We’re not so sure. In any case, investors will now need to rethink their strategies as the market stabilizes, shifting their focus from high risk, high reward bets to sustainable, scalable models that create long-term value. As the market corrects, those who come out on top will likely be those who focus on innovation that doesn’t rely on huge funding, but instead on smart, efficient growth.

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