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Concerns are growing in Silicon Valley and globally that the rapid influx of capital into Artificial Intelligence (AI) companies may be creating a speculative bubble, reminiscent of the dot-com era, with potential implications for Kenya's burgeoning digital economy.
Fears of an Artificial Intelligence (AI) market bubble bursting are intensifying, with industry leaders and analysts questioning the sustainability of massive investments in unproven business models. This sentiment was echoed by OpenAI CEO Sam Altman during the company's DevDay on Monday, October 6, 2025, in San Francisco, where he acknowledged that 'many parts of AI that I think are kind of bubbly right now.'
The debate over whether AI companies are overvalued has taken on new urgency in Silicon Valley, with some skeptics privately and publicly comparing the current AI boom to the dot-com bubble of the late 1990s, which ended in a spectacular crash.
The current AI investment frenzy sees tech firms pouring hundreds of billions of dollars into advanced chips, massive data centres, and AI tools, with total spending potentially reaching trillions. This capital comes from venture capital, debt, and unconventional arrangements, raising concerns on Wall Street. Despite the hype, a report by the Massachusetts Institute of Technology (MIT) in August 2025, based on interviews with 150 executives and 350 employees, concluded that approximately 95% of the massive investments in generative AI have yielded no returns. The study found that only about 5% of AI systems implemented in organisations delivered real value, with employees often spending extra time fixing mistakes and verifying information.
In Kenya, the economic potential of AI is significant, with projections indicating it could add $2.4 billion to the economy by 2030, according to a December 2024 report by Public First. Google products alone are estimated to have generated $900 million in economic value in Kenya in 2023. However, the global concerns about an AI bubble could influence near-term public debate and policy execution in Kenya, with stakeholders urging clarity on timelines, costs, and safeguards.
Kenya has been proactive in establishing a framework for AI governance. On Wednesday, March 27, 2025, Kenya launched its National Artificial Intelligence (AI) Strategy 2025–2030, a pioneering policy framework in Sub-Saharan Africa. This strategy aims to position Kenya as a regional hub for AI research, innovation, and responsible adoption, aligning with Vision 2030 and the National Digital Master Plan (2022–2032).
While Kenya currently lacks specific AI legislation in force as of April 2025, it relies on existing cross-sector laws such as the Data Protection Act, 2019, which regulates personal data processing and limits automated decisions with significant adverse effects. The National AI Strategy introduces new considerations for data governance, liability, ethics, and compliance. Additionally, the Kenya Bureau of Standards (KEBS) published a Draft Code of Practice for Artificial Intelligence Applications, which was open for public consultation from April 8 to June 13, 2024.
Sam Altman, CEO of OpenAI, acknowledged the 'bubbly' nature of some parts of the AI market but maintained his belief in AI's historical significance. However, the Bank of England has warned of a potential 'sharp correction' due to 'stretched' valuations in the AI sector, driven by hundreds of billions of dollars funnelled into infrastructure based on future promises rather than present profits. Goldman Sachs, while cautiously optimistic, advises investors to diversify due to high concentration and increased competition in the AI space.
In Kenya, an invisible workforce of data annotators, crucial for training AI systems, has raised concerns about long hours, difficult conditions, and low wages, often less than $2 per hour. These workers, many from vulnerable backgrounds, report trauma and distress from the nature of their work. This highlights ethical considerations within the AI supply chain, particularly regarding fair labour practices and the responsibility of tech giants.
The potential bursting of an AI bubble could lead to significant capital destruction, as noted by hedge fund manager David Einhorn. Bain & Company estimates that feeding AI's computing appetite will require $2 trillion in annual revenues by 2030 to make investments viable, yet the industry faces an estimated $800 billion deficit. This financial strain could be exacerbated by diminishing returns from increasingly larger AI models and rising competition from cheaper AI models from countries like China.
For Kenya, while the National AI Strategy aims for responsible development, the global economic shifts in the AI sector could impact foreign investment and the growth of local AI initiatives. The ethical concerns surrounding data annotation work also pose reputational risks and highlight the need for robust regulatory oversight to protect vulnerable workers.
Despite the substantial investments, the long-term profitability and tangible economic impact of many AI applications remain uncertain. While AI is seen as a transformative technology, the market's rapid growth has outpaced clear profit-making business models. The extent to which AI will genuinely enhance productivity across all sectors, rather than merely requiring more time for error correction, is also a subject of ongoing debate.
Observers will be closely watching the upcoming earnings reports from major tech companies, which could indicate whether the market's confidence in AI is well-founded or if a correction is imminent. In Kenya, the implementation of the National AI Strategy 2025–2030 and the development of specific AI legislation will be crucial for navigating the opportunities and challenges presented by this rapidly evolving technology. Attention will also be on efforts to ensure ethical practices and fair compensation for data workers, particularly as the demand for AI training data continues to grow.
