Jeff Bezos Is the Latest Tech Executive to Talk About an AI ‘Bubble.’ Why He’s Still Optimistic.

Jeff Bezos, founder and executive chairman of Amazon. (Michael M. Santiago/Getty Images)

Key Points

• Jeff Bezos believes artificial intelligence is experiencing an “industrial bubble” but will still profoundly benefit society.
• Five of the Magnificent Seven stocks are trading at higher price/earnings ratios than their five-year averages, with Tesla at 188.8 times forward earnings.
• The S&P 500 is trading at 23 times forward earnings, exceeding its five-year average of 20.3 times.

Amazon.com founder Jeff Bezos says that while artificial intelligence is facing an “industrial bubble,” the technology will still have significant positive effects on society.

The fever of enthusiasm over the technology “doesn’t mean that anything that’s happening isn’t real,” he said. “Like, AI is real, and it is going to change every industry.”

Bezos, who was CEO of the e-commerce company when the dot-com bubble burst in 2000, was asked for his thoughts on a potential AI bubble in an interview at Italian Tech Week in Turin, Italy, on Friday.

“When people get very excited, as they are today about artificial intelligence, for example, every experiment gets funded,” he said. “Every company gets funded—the good ideas and the bad ideas—and investors have a hard time, in the middle of this excitement, distinguishing between the good ideas and about ideas.”

Wall Street has been paying close attention to whether there is an AI bubble for several months. An interview that OpenAI CEO Sam Altman had with a group of reporters in August has added to the concern.

“Are we in a phase where investors as a whole are overexcited about AI?,” The Verge quoted him as saying at the time. “My opinion is yes. Is AI the most important thing to happen in a very long time? My opinion is also yes.”

While companies are spending billions of dollars on infrastructure to provide the computing power AI needs to accomplish breakthrough tasks, the technology still can’t do many of the things it is expected to be able to accomplish. How tech companies will make money from AI is a second issue.

That raises the question whether valuations for AI-related stocks are too high. Five of the Magnificent Seven stocks are currently trading at price/earnings ratios higher than their five-year averages.

Alphabet is trading at 23.4 times the earnings expected over the next 12 months; Apple is at 32.1 times; Meta Platforms at 24.6 times; Microsoft at 31.8 times; and Tesla at 188.8 times forward earnings. Amazon and Nvidia are the only two trading below their five-year averages, at 30.2 times and 32.7 times forward earnings, respectively.

The S&P 500 is trading at 23 times forward earnings, compared with its five-year average of 20.3 times.

Regardless of the fear that stocks could fall as a bubble pops, executives remain optimistic about what comes next. “When the dust settles and you see who are the winners, society benefits from those inventions,” Bezos said on Friday. “This is real. The benefits to society from AI are going to be gigantic.”

Altman is powerfully optimistic as well.

“We are confident that this technology will drive a new wave of unprecedented economic growth” he said at a Sept. 23 news conference at the first Stargate data center in Abilene, Texas. “And not just economic growth, but people’s lives will be much better. Scientific breakthroughs, you know, huge quality of life improvements, new ways to express creativity.”

Write to Angela Palumbo at angela.palumbo@dowjones.com